Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 13, 1995 TAG: 9504200027
SECTION: NEIGHBORS PAGE: S-2 EDITION: METRO
SOURCE: JEFF STURGEON STAFF WRITER
DATELINE: LENGTH: Long
Nonetheless, it's a small business according to the federal government. It could be eligible for programs that many people think are reserved for mom 'n pop groceries and restaurants and other fledgling businesses.
The same is true for many companies with hundreds of employees and millions of dollars in sales.
Federal officials acknowledge that many firms the public considers large meet the government's thumbnail definition of small - a company with 500 or fewer employees. It's a quirk of the system of helping less-developed business get a leg up.
Jim Shelton, a spokesman for the U.S. Small Business Administration, suggested the public is taking the word "small" too literally.
"It's 'small' relatively speaking," Shelton said.
The guideline determines which companies can receive government aide and bid for certain government contracts for goods and services. Back when Congress started the SBA in 1953, it was agreed that employment was a good measure by which to categorize businesses because employee counts are inflation-proof, easy to see and understand and readily available.
"You have to have a cutoff point somewhere," said small business expert John Jennings.
Without it, the government couldn't control who receives such benefits as valuable loan guarantees from the SBA. They enable businesses without ample credit or sales history to borrow money to expand or modernize, said Jennings, who directs the Blue Ridge Small Business Development Center in Roanoke.
"You don't want General Motors getting a loan guarantee from the federal government, to use a ridiculous example," Jennings said.
Virginia established less cumbersome admission requirements to its small-business programs. It has defined a small company as one having either fewer than 250 employees, less than a $2-million net worth or less than $10 million in sales each of its latest three years in operation.
What's curled eyebrows among members of the public, business community and academia is the federal government's 500-employee cut-off point.
"I've never used it in my course," said C. Ray Smith, a professor of business administration at the Darden Graduate School of Business Administration at the University of Virginia, Charlottesville. "In my own personal opinion, none of the measures make any sense."
By the government's definition, more than 99 percent of Virginia's 160,000 businesses are small.
To be sure, the "small" category is peopled with scores of one- and two-person operations here in the Roanoke Valley. A New Castle man builds eyeballs from plastic, paint and tiny red plastic threads. A Vinton couple herds ostrich. A Salem man cooks in the homes of people who are too busy to do it themselves.
In fact, of about 5 million companies with at least one employee in 1988, some 3 million firms fit the lay definition of small; they had fewer than five employees.
On the other hand, about 13,000 firms nationally employed more than 500 people, the SBA said. The relatively few big firms employ a whopping 50 percent of the work force, the SBA said.
Despite their size, these firms provide only about 30 percent of all new jobs. Small businesses create the rest, the SBA said.
"Small business isn't small. It's about half the private economy," Jennings said.
Jennings chides those who would cast off small firms as small players in the economy. "It's sort of a lack of respect. That's not quite right. It's misunderstanding."
The government clearly understands the role of small business and has gone to great lengths to define it, he said. The SBA has published a 38-page "Consolidated Table of Size Standards" that spells out definitions of "small" for every imaginable industry.
According to Smith, the list is extensive because the SBA had to flex its flat 500-employee definition to account for the differing nature of industries. Those who sell printing and writing paper at wholesale, for example, need less labor than those who make breakfast cereal. As a result, the government labels paper wholesalers up to 100 employees as small but allows breakfast-food makers to have as many as 1,000 employees and still qualify as small.
Also small is a 1,500-employee small-arms ammunition manufacturer, aircraft maker or marine, fire and casual insurance carrier, the table said.
Many industries defy definition by the number of employees, so bureaucrats employ financial measures, too. That's because a construction firm of several employees, for instance, could gross millions of dollars in sales through subcontracting.
The definition of small generally applies to service companies and retailers with sales of $5 million to $21.5 million, construction firms with receipts of $7 million to $17 million and farming companies that gross $500,000 to $9 million. A small bank? Assets of less than $100 million.
So what services can small businesses get? In the interest of helping small businesses grow - "Microsoft was once a small business," Jennings noted - governments have created myriad programs that address a company's financial and management needs.
The state offers loan guarantees and export assistance for starters. The federal SBA offers more elaborate loan guarantees, management training, counseling and technical assistance.
SBA spokeswoman Sheila Thomas denies that the definitions are a source of confusion for the business community. Rather than grumble, "they're just happy that they're small," Thomas said.
by CNB