You can think of a microbusiness as a subset of a small business, though it operates and has very different challenges than a small business does. A microbusiness owner needs to create operations, capital needs, and scaling measures that are specific to a microbusiness entity. A microbusiness is often run by a sole proprietor, meaning the owner must spread themselves across various roles or departments to keep the business functioning. Further, dollars to invest in marketing and growing a customer base are more limited with a microbusiness, pushing an owner to get creative when it comes to building an active clientele. Microbusinesses often fall within the industries of retail, construction, and health care. Many independently owned creative shops fall within this scope too, such as businesses on Etsy. According to 2017 data, microbusiness employers account for 74.8% of all private-sector employers.
Alternate name: Microenterprise
How a Microbusiness Works
A microbusiness is one of the smallest business entities, categorized as having much lesser annual revenue and employees than the average small business. To maintain status as a microbusiness according to the SBA, a company must:
Employ one to nine employees, including the ownerMake below specific annual revenue numbers set by state and local governments, such as Vermont’s regulation of $25,000 in annual revenueHave small startup costs and capital needs, aligned with the small scale operations necessary to keep the business running
As mentioned, microbusinesses often operate with a small team and slim resources. Keeping a business operational could mean a need for expansion, and expansion takes additional capital to ensure success. To lump microbusinesses into the same category as small businesses would create unfair challenges and competition for microbusiness owners seeking funding opportunities. Just like a small business has specific loan programs available to help them thrive, so do microbusinesses. The SBA offers a microloan program that provides loans of up to $50,000 to help businesses and certain nonprofit child care centers startup and grow. The average microloan, though, is generally about $13,000. Loans from the microloan program can be used to fund working capital, inventory or supplies, furniture or fixtures, or lastly, machinery and equipment.
State Aid for Microbusinesses
It can be very competitive for small businesses, including microbusinesses, to receive small business grants from the SBA. As a result, there are many state and local programs that provide aid for microbusinesses too. Vermont, for example, offers a Micro Business Development Program to companies that have less than five employees and generate less than $25,000 in annual revenue. Through this program and others like it, microbusiness owners have the opportunity to:
Network with other entrepreneursTake relevant courses on topics like building your credit score and record-keepingGain access to technology resourcesWork one-on-one with an experienced business counselor
Also keep in mind that many microbusinesses operate as sole proprietorships, not going as far to register as an LLC or corporation as many small businesses do. As a result, a microbusiness owner is taxed according to the tax rate on their personal tax return, as opposed to filing business taxes separately.
title: “What Is A Microbusiness " ShowToc: true date: “2022-12-28” author: “Clara Blaylock”
Microbusinesses work like other small businesses, but they may have difficulty getting credit and funding for startup and expansion.
What Is a Microbusiness?
The Small Business Administration (SBA) defines microbusinesses as those that have 1-9 employees. You may see other definitions for different states or localities. For example, Vermont defines a microbusiness as one that employs fewer than five people and generates less than $25,000 in annual revenue. Other definitions of microbusinesses include sole proprietors with no employees.
Microbusinesses vs. Small Businesses
Think of a microbusiness as a subset of the term “small business.” The definition of a small business varies for different industries. In manufacturing, for instance, a small business is 500 employees or fewer, and for retail and service, it’s $6 million or less in average annual revenue. The SBA sets a size standard for small businesses to qualify for government-backed loans and government contracts.
Types of Microbusinesses
Many microbusinesses are in the retail sector, construction, health care, and social assistance. In addition, microbreweries can be considered microbusinesses, as they’re defined by producing fewer than 15,000 barrels of beer each year. A growing number of states are associating the term “microbusiness” with cannabis-related businesses for licensing purposes. For example, California has a microbusiness license that allows the cultivation of cannabis and for businesses acting as distributors, manufacturers, or retailers.
How Does a Microbusiness Work?
Microbusiness start in the same way as other larger businesses, including
Selecting a formal business legal structure, like an LLC, corporation, or partnership Setting up financial, marketing, management, and operations Getting business licenses and permits
Microbusinesses also operate the same way as other business types. They are taxed depending on the business type selected by the owner—sole proprietorship, corporation, partnership, or LLC—and must pay business income taxes, payroll taxes, sales taxes, property taxes, and other required state and federal taxes.
How to Get a Microloan for a Microbusiness
Small businesses, including microbusinesses, have a more difficult time getting loans for startup and expansion, in part because they have little capital (cash and other assets) to contribute, and also because traditional lenders typically don’t like to lend small amounts. There are lending possibilities for getting a loan for your small business if you want a small amount of money (under $50,000). The Small Business Administration (SBA) has a microloan program that offers loans of up to $50,000 for small businesses. It works with intermediary lenders (called microlenders), which are specially designated, nonprofit community-based organizations that administer the programs in addition to providing training and planning guidance. You may also be able to get a small loan from a local bank or credit union, or from peer-to-peer lenders.
Microloans for Businesses in Certain Areas
Microlending has become an alternative to traditional lending for businesses in communities that don’t have access to traditional funding. Microbusinesses and small businesses that are in underserved areas or have low credit ratings can use private microlending organizations for:
Inventory or suppliesWorking capitalPayroll costsSeasonal expensesMarketing campaigns
The U.S. Chamber of Commerce has a list of private microlenders, most of them nonprofits, and others that loan to global businesses. Some, like Accion, make equity investments rather than loans.
State Help for Microbusinesses
Some states and organizations offer help for small and microbusinesses. For example, Vermont has a Micro Business Development Program to help low-to-moderate-income Vermonters start and grow microbusinesses. They offer networking, resources, classes and workshops, and counseling. Another example is a program set up by Mecklenburg County, Pennsylvania to help microbusinesses impacted by the economic downturn by offering up to $10,000 to qualifying businesses. Some states offer a tax credit to microbusiness owners. Nebraska, for instance, gives an income tax credit of up to $10,000 based on “demonstrated growth” of the business over the past two years. Check with your state and locality for loans specifically for microbusinesses and small businesses.
Pros and Cons of a Microbusiness
