Advantages of Small Business and the Economy

3 min read · 1 month ago


Much attention is paid to big companies in business news, but there is a lot of positive impact when it comes to small business and the economy. This article will examine the many areas of the economy and community where small businesses like yours can make a real difference.

Let’s start with the basics. The government defines a small business “as an independent business having fewer than 500 employees.” According to the Small Business Administration (SBA), there are an estimated 31.7 million small businesses in the U.S. The fact alone that there is a government agency focused on small businesses is also an indicator of small business impact on the economy.

Still, if you ever need to make a case for your small business and the economy, here are several positive impacts to share: 

  • Job creation
  • Keeps money in the community
  • More diversity
  • Greater local community investment 


Job Creation

Small businesses comprise 99.7% of firms with paid employees. According to the Bureau of Economic Development, “from 2000 to 2019, small businesses created 10.5 million net new jobs while large businesses created 5.6 million.” Additionally, “small businesses have accounted for 65.1% of net new job creation since 2000.”

Small businesses employ 47.1 percent of private-sector employees. As “incubators for innovation and employment,” they also contribute to the country’s gross domestic product (GDP). According to the SBA, in 2019, small businesses delivered 43.5 percent of the GDP.

The small firm is also more likely to develop emergent technologies judging by patent filings. Small businesses produce 16 times more new patents per employee than large patenting firms do. 


Keeps Money in the Community

Keeps Money in the Community

Local businesses generate revenue that is taxable by the community. They might need to pay local property taxes. These funds are then used to support local schools and public services. Their sales taxes also help support projects such as sidewalks, lighting, and more. Plus, that thriving small business helps the property values in that local community, which helps homeowners and the local government.

Local businesses also have an economic impact on the community by providing goods and services to big businesses in the area. Plus, the small business owner will rely on other local businesses for its supply chain or other services. The small business might need a local accountant or cleaning crew or buy figs, fabric, or flour from another local small business.

In one University of Pennsylvania study, local business was actually better for the economy. That’s because big box stores and large corporations have so many internal systems that they may not contribute to the local economy.


More Diversity

Diversifying the workforce is another area where small business wins in the small business vs. big business comparison. According to the SBA, again in the 2019 report, small businesses better reflect the diversity of the United States population than large corporations do.

In fact, in the small business economy:

  • 36 percent of small businesses are owned by women
  • 9 percent are owned by veterans
  • 14.6 percent of small businesses are owned by people of color, including:
    •  2.3 million Latinx business owners
    • 1.9 million Black business owners 
    • 1.6 million Asian business owners

Now, women- and minority-owned businesses do still lag far behind firms owned by white men. Yet, at least women-owned businesses have skyrocketed by 114% over the past 20 years.


Greater Local Community Investment 

Greater Local Community Investment

Along with the role of small business in the economy, it also helps to consider the small business impact in the community overall. After all, a happier and healthier population is a more productive and innovative one.

Being able to buy and sell from friends and neighbors is a positive, especially in smaller or rural areas. Plus, with small businesses more likely to support fellow local merchants, there are sustainability gains too. For one thing, carbon emissions are lowered as the supply chain is more compacted.

Small businesses also tend to be more accountable and donate more to the local community than their bigger competitors. With more direct contact with their buyers in the community, they tend to be more directly customer-focused.

Ultimately, with all this data, there should be no questioning small businesses’ effect on the economy. Entrepreneurs and small business owners can make a big difference. Get started today!