Friday, May 15, 2020

What is a "Small Business?" The Definition Matters

Small business is a challenging category, as it includes self-employed people who work out of their homes, as well as the  “gig economy” self employed, So most small businesses might not qualify for assistance as part of the U.S. Payroll Protection Program, which is designed to help small businesses avoid layoffs. 


By some estimates, there are 30 million small businesses in the United States. By some estimates six million businesses have gotten PPP loans. The implication is that the program has not reached most firms. That might not be the case. 


According to the U.S. Census Bureau there are about 27.6 million total U.S. businesses and about six million companies. But only about 7.9 million locations have “employees.” Keep in mind that those figures are for all businesses, not just small businesses. 


Put another way, those 7.9 million locations of all sizes represent 131 million employees, and most small businesses have no employees.


If six million small businesses have gotten PPP funds, and there are but 7.9 million total U.S. locations with employees (enterprises and mid-sized firms plus small businesses), then it is quite possible that most actual small businesses with employees have gotten assistance. 


Assume 88 percent of all firms have fewer than 20 employees. That implies 5.3 million firms out of the total. If six million PPP grants have been made, that could imply that every firm with 20 or fewer employees has gotten a grant. 


Not having looked at the rules, it is hard to say, but since 72 percent of all businesses have zero employees, they might not qualify at all for PPP support. The latest U.S. Census Bureau data “show that more than three-fourths of U.S. businesses may be run out of someone’s home and have zero employees


The more-disturbing conclusion might be that many small businesses have decided not to risk accepting the PPP loans, and have instead laid off their employees, while many firms getting the PPP loans might still be considered “small,” but perhaps have more employees than 20. 


About 10.8 million U.S. business locations have fewer than 20 employees, and nearly half of those have fewer than nine employees each. 


The percentage of businesses that are home based has grown over the last decade. In 2007, more than half of all U.S. businesses were home based. By 2017, 38 million businesses were said to be home based. 


Right now, it is hard to say what percentage of “small businesses” have chosen to apply for or accept PPP assistance.


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