It’s the American dream—to start your own small business and work your way up year after year. As your own boss, you get to call the shots and control your destiny. It’s a good way to grow your income instead of relying on bosses to give you a raise each year. Or, keeping your eye on the job boards, applying, interviewing and following up before getting the news, good or bad. With hard work, a good idea, and some know-how, how much you earn could be largely up to you, which is an appealing reason for owning your own business.
The U.S. Small Business Administration (SBA) defines a small business as one that has fewer than 500 employees, which leaves a lot of leeway for what’s considered "small." That said, there are approximately 28 million small businesses in the country right now.
To help small businesses thrive, the SBA had a 2017 budget of $719 million for capital, assistance, and contracting opportunities for small business owners. But here’s a look at the bigger, statistical picture for small business in the United States.
Business Startup Rates
Startups are businesses that are in their earliest stages of life – the Bureau of Labor Statistics (BLS) defines a startup as a business that is less than one year old.
Key Business Startup Rate Statistics
- The number of startups from 2007 to 2010 decreased by about 25 percent.
- The number of startups in 2010 was approximately 326,091 in the U.S., a record low for the 1994 to 2017 period. In 2016 and 2017, the number recovered to pre-recession averages of over 400,000 startups each year.
- Some popular ways to get money for startups include credit cards, friends and family, and crowdfunding.
- Some popular industries right now for startup businesses include healthcare, the marijuana industry, e-commerce, technology, home repairs, and maintenance.
While would-be business owners might be able to start a business with a few thousand dollars or less, those looking for brick-and-mortar businesses carrying inventory will need much more than that. Finding financial sources to fully fund a startup remains a big challenge for the idealistic entrepreneur.
Who Owns a Small Business?
- Women own 9.9 million businesses in the U.S. In 2012, those businesses brought in $1.4 trillion in sales.
- Men owned 14.85 million businesses in the U.S. Those businesses raked in $9.5 trillion in sales.
- When a woman owns a business, it’s almost guaranteed to be a small business—99.9 percent of the businesses owned by women are small.
- The top industries for businesses owned by women that employ other people include restaurants, personal care services, offices for health practitioners, offices for physicians, and consultation businesses.
- The top five industries in women-owned businesses where there aren’t any employees include personal care services, personal services industries, child care, services to buildings, and direct selling.
- Of minority-owned businesses, 53 percent are owned by men.
- With African-American-owned businesses, however, 59 percent are owned by women.
- Only 15.9 percent of all business owners were younger than age 35 in 2012.
While anyone can start a small business, many business owners tend to be older. There can be a lot of reasons for this, including having an idea for the business, having more startup money available to them, having the confidence to take the plunge, or having the time and energy to dedicate to the business.
Small Business Owners and Student Loan Debt
Young would-be business owners have special challenges when it comes to financing their ventures. In many cases, they're already carrying heavy student loan debt. This is a trend that isn’t likely to reverse any time soon.
- Only 21 percent of those under 40 had student loan debt in 1995, but by 2010 that percentage had increased to 37 percent.
- Only 17 percent of homes with a self-employed person living there who owed on student loans had sought business loans in the prior five years. Meanwhile, 27 percent of those without student debt sought business loans.
- When small business owners had student loans, they were less likely to have as many employees as business owners who didn’t have student loans; the average was nine workers compared to two.
- Non-Hispanic blacks represented a fairly large share of business owners who had student loan debt at 21 percent. But they represented only seven percent of business owners who did not owe any money for student loans.
- The debt students graduate with has increased greatly in recent years. In 1995, the average student loan debt load was $12,000 for a student who owed on student loans. But by 2013, that number had jumped to $29,000.
How Business Owners Borrow
Small business owners borrow to launch their business, get inventory, expand, and shore up the financial foundation of the business.
- Bank loans are still a big way for small businesses to get financing. In 2015, bank loans for small businesses reached nearly $600 billion.
- Finance companies, venture capital, and angel capital also provide funding for small businesses. Although venture and angel capital combined made up about only 2 percent of financing for small business in 2015.
- Personal savings, credit cards, home equity, loans from loved ones, and crowdsourcing also provide a lot of funding to small business owners.
- Approximately one-fourth of small businesses used no financing at all.
- More than half of all small business owners use their personal savings to launch their business.
- How much a business costs to start up depends on many factors, but some micro-businesses out of the home can get off the ground for $3,000 or less.
Business Failure Statistics
The sad fact is that many of the new businesses that start up won’t last very long. In 2008 and 2009, more businesses closed than started up. In recent years, startups have outpaced business deaths, but in some years not by much.
- During the last 25 years, about 7 percent to 9 percent of employer firms on average close each year; slightly less than the number that open. Closures have mostly trended downward in recent years.
- Almost one in 12 businesses on average will close each year.
- In 2015, the biggest reasons businesses that had employees closed were because of low sales, retirement of the owner, and the owner deciding to sell the business. But other popular reasons for closing businesses include closing one business to start up another or the owner becoming ill or injured.
- As the economy has strengthened in recent years, it’s more likely now for businesses to close for retirement of the owner, but the top reason is still low sales.
- About 6 percent of all small businesses close because an owner wants to start another business.
- Credit access is becoming less of an issue in why a business closes compared to during the Great Recession. Only five percent of businesses closed in 2015 because of lack of credit compared to 14 percent in 2007.
Other Interesting Facts About Small Business
One thing that has helped some single entrepreneurs decide to make the leap when it comes to opening their own businesses is that they now have health insurance available to them through the open marketplace. The possibility of not being able to land an insurance policy was a deterrent for some would-be business owners.
But when it comes to small businesses, many don’t offer health insurance coverage to their own employees.
- Nearly 50 percent of businesses with three to nine employees provide health insurance to their employees.
- That number jumps to 71 percent when businesses are a bit bigger, with 10 to 24 employees.
- When a business has between 25 to 49 employees, 85 percent of companies offer health insurance benefits.
- Those with more than 200 employees are the likeliest to offer health insurance at 99 percent.
LendEDU is on a mission to help consumers learn about and compare financial products, including student loans, personal loans, credit cards, insurance products, banking products, and more. Their goal is to help you make confident decisions.