What Role Do Small Businesses Play in the American Economy?

The development of small businesses in the U.S. declined in the four decades before the pandemic — but since 2020, this segment of the private sector has driven most job creation.What is considered a small business?The Small Business Administration (SBA) generally defines any independent business with fewer than 500 employees as a “small business.”How many small businesses are there in the U.S.?Small businesses represent 99.9% of all businesses in the U.S. As of July 2024, there were 34.8 million small businesses compared to 19,688 large businesses.These small businesses employ 59.0 million people, or 45.9% of all private sector employees, and are responsible for 61.1% of total job growth since 1995.As small businesses account for nearly all businesses, the demographics of small business owners essentially mirror those of all business owners. The latest data compiled by the Small Business Administration indicates that women own 39.4% of all businesses, including 21.6% of employer businesses. White entrepreneurs own 79.3% of businesses, while Black entrepreneurs own 11.0%, Hispanic entrepreneurs 14.5%, and Asian entrepreneurs 9.3%.How much has entrepreneurship increased?Shortly after the pandemic began, applications for new businesses surged. Business applications increased by nearly 25% in 2020 — from 3.5 million to 4.4 million compared to 2019, a historic record.The number of applications remained high: in 2021, it reached 5.4 million before falling to about 5.1 million in 2022. In 2023, applications set a new record of 5.5 million. In the first 10 months of 2024, people submitted 4.3 million applications.How do small businesses impact the economy?Despite the size and impact of the small business sector, data collection on small business activity is limited, according to the Bureau of Economic Analysis.Large companies grew faster and accounted for the majority of gross domestic product (GDP) between 1998 and 2014, according to a research summary on small businesses and GDP from the SBA. The share of small businesses in GDP declined during this period — but they still accounted for 43.5% of economic activity in the U.S. in 2014.The Congressional Budget Office notes that small businesses also contribute to the economy by boosting productivity and generating competitive pressure that forces larger companies to innovate.Source: USA Facts