A microbusiness is a subcategory of a small business, defined specifically by its small number of employees, annual revenue, and startup costs. Microbusinesses are often run by solopreneurs, freelancers, and side hustlers who begin a business with very small operational and capital needs.
Many business owners consider themselves a small business when, in reality, they should identify as a microbusiness for proper growth and resource allocation. This becomes particularly important when discussing funding opportunities and growth programs.
Below, learn the pros and cons of a microbusiness, as well as how to make the most of less daily business activity than the average small business.
Definition and Examples of Microbusiness
A microbusiness is an entity defined by its small number of employees, annual revenue, and startup costs. The U.S. Census Bureau and the Small Business Administration (SBA) define microbusinesses as companies with fewer than 10 employees. However, there is technically no universal definition, and each state tends to set its own standards for the size and scope of a microbusiness.
Examples of state regulation include Connecticut, which further identifies microbusinesses as making under $500,000 in annual revenue. California, on the other hand, defines a microbusiness as one with annual gross revenue of $2.5 million or less over the three previous years, or a business with 25 or fewer employees.
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.
Supporting microbusinesses in local economies is crucial to creating employment opportunities and building a sense of community in local neighborhoods. Selecting a solopreneur owned cafe over a big-brand coffee shop can make a difference for economic and employment diversity.
- 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 owner
- Make below specific annual revenue numbers set by state and local governments, such as Vermont’s regulation of $25,000 in annual revenue
- Have 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.
The SBA provides funds to specifically chosen intermediary lenders, such as nonprofit organizations with lending experience, that then distribute the loans to eligible borrowers. Each lender has its own credit and lending requirements, and they generally require collateral and a personal guarantee of the business owner.
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 entrepreneurs
- Take relevant courses on topics like building your credit score and record-keeping
- Gain access to technology resources
- Work 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.
- A microbusiness is a type of small business that has under 10 employees (according to the SBA), meets specific annual revenue criteria set by state authorities, and has small startup needs.
- Identifying an organization as a microbusiness is key to sustaining growth and applying for resources and loans particular to microbusiness owners.
- Loans from the microloan program can be used to fund working capital, inventory or supplies, furniture or fixtures, or lastly, machinery and equipment.