Businesses with fewer than 500 employees, which would usually fall in the category of small business based on Small Business Administration guidelines, make up nearly 8 in 10 of establishments in the United States and employ nearly half of all workers. This is why one of the measures in the $2 trillion CARE package is a Paycheck Protection Program that funds $349 billion for an SBA loan program that provides loans and encourages businesses to retain their workers during the coronavirus pandemic.
According to the SBA eligibility guidelines, businesses – including eligible non-profits, Veterans organizations, Tribal concerns, sole proprietorships, self-employed individuals, and independent contractors described in the Small Business Act – with 500 or fewer employees may apply although businesses in certain industries may have more than 500 employees or meet the SBA’s size standards for those industries. Under this program, eligible recipients may qualify for a loan up to $10 million determined by 8 weeks of prior average payroll plus an additional 25% of that amount. Loan payments will be deferred for six months. A portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination will be forgiven.
In this blog, I will discuss the importance of small business establishments by industry and by state and assess how large is the emergency assistance for small businesses compared to their payroll.
Business establishments by employment size in 2017
According to the U.S. Census Bureau’s 2017 Statistics of US Business (SUSB), 82.9% of the 7.86 million establishments in the United States in 2017 had fewer than 500 employees, which would generally qualify as “small business” as defined by the Small Business Administration1. This accounted for slightly less than half of total employment, at 47.1%, with 500+ size establishments accounting for the rest.
While the majority of businesses across all states have fewer than 500 employees, there is some slight variation across states. Surprisingly, in New York, business establishments with fewer than 500 workers account for nearly 90% of business establishments. In other states that are badly hit by the coronavirus such as California, Washington, Florida, and Michigan, they account for 86% of establishments. In Texas and Pennsylvania, they account for 80%. In Louisiana, they account for 78%. Surprisingly, in the District of Columbia, only 76% of establishments had fewer than 500 workers.
Use this tool to explore establishment data by state:
Real estate and construction: 93% have fewer than 500 workers
The construction and real estate sectors are one of the most “small-business oriented” industries. In the real estate, rental, and leasing industry, there were 406,569 establishments, 83.3% of which employed fewer than 500 workers of a total of 2.1 million employees. In the construction industry, nearly 99% of establishments had fewer than 500 workers, the smallest fraction among all industry sectors. Together, 93% of real estate, rental, and leasing and construction establishments have fewer than 500 employees. During the Great Recession, many construction companies folded up, so this emergency package that supports small businesses will go a long way to propping up the real estate and construction companies.
On the other hand, the retail trade industry is a “large business industry,” with 31% of establishments having at least 500 employees. While retail trade establishments are mostly large, brick-and-mortars are fighting for their survival with the continuing inroads of e-commerce, which is only likely to expand with social distancing measures in place.
The industries with a higher fraction of establishments employing more than 500 workers are management of companies (64%), utilities (60%), information (42%), and finance and insurance (39%)
Use this tool to explore establishment data by industry by state:
How far will the $349 billion package support industries?
The $349 billion package is a great help to small businesses meet their payroll needs, retain their workers, and keep operating. How far the assistance will last will depend on how long the coronavirus pandemic crisis continues. The industries most impacted by coronavirus have an annual payroll of $1.3 trillion. Therefore the $349 billion represent 27% of the payroll of the small businesses (in 2017 dollars). If needing to cover 4 months — before the all-clear declaration to open business — then the $349 billion represents 80% of the payroll.
Annual payroll in 2017 dollars of industries most impacted by coronavirus
|Accommodation and food services||$274.5 billion|
|Retail trade||$444.4 billion|
|Arts, entertainment, and recreation||$84.1 billion|
|Transportation and warehousing||$560.5 billion|
1 For real estate, rental, and leasing, the size standard for a small business is related to a measure of receipts or revenues of $8 to $30 million, not employee size. See Small Business Size Regulations.