How Important Are Small Businesses to Local Economies?

The importance of small business to local communities is emotionally rooted in buying and selling with friends and neighbors. The importance of small firms in rural areas and big cities also is seen in the economic benefits of shopping locally. In some towns and villages, a small business is the only type that can survive while serving a reduced population. In a big city, small businesses often offer a more diverse inventory or specialize in providing unique or personalized customer experiences. Small businesses also present new employment opportunities and serve as the building blocks of the United States’ largest corporations.

Growing Small Businesses in the U.S.

A small business is defined as a business (corporation, limited liability company or proprietorship) with 500 employees or less. According to the U.S. Small Business Administration (SBA), small businesses represent 99.9 percent of all U.S. businesses. Small businesses created 1.9 million jobs in 2015 with some of the smallest firms – those with 20 employees or less – adding over half of the positions with a 1.1 million increase. As of 2018, the SBA estimates there are 30.2 million small businesses employing a total of 58.9 million workers.

Employing Local Workers

Small businesses contribute to local economies by bringing growth and innovation to the community in which the business is established. Small businesses also help stimulate economic growth by providing employment opportunities to people who may not be employable by larger corporations. Small businesses tend to attract talent who invent new products or implement new solutions for existing ideas. Larger businesses also often benefit from small businesses within the same local community, as many large corporations depend on small businesses for the completion of various business functions through outsourcing.

Adapting to Changing Climates

Many small businesses also possess the ability to respond and adapt quickly to changing economic climates. This is due to the fact that small businesses are often very customer-oriented and understand the needs of the community. Many local customers remain loyal to their favorite small businesses in the midst of an economic crisis. This loyalty means that small businesses are often able to stay afloat during tough times, which can further strengthen local economies. Small businesses also accumulate less revenue than larger corporations, meaning they may have less to lose in times of economic crisis.

Contributing to Local Government with Taxes

When consumers patronize local small businesses, they are essentially giving money back to their local community. A thriving local business will generate high levels of revenue, which means that the business will pay higher taxes, including local property taxes. This money is then used for local police and fire departments as well as schools. A thriving small business also can improve property values throughout a community, improving every homeowner’s bottom line while generating more property taxes for local governments.

The small business impact on local economy growth also takes the form of sales tax collection. Local businesses charge sales tax based on their location and can be the backbone of special taxation districts focused on unique projects, such as lighting and sidewalk projects to improve historic shopping districts and attract additional customers.

Growing a Small Business to a Corporation

Small businesses do not always stay small. Large corporations, such as Nike and Ben and Jerry’s, started off as small businesses and grew to become major players in the national and international marketplace. Many computer-industry leaders began as “tinkerers,” working on hand-assembled machines out of their garages. Microsoft and Amazon are prime examples of how a small business idea can change the world. Small businesses that grow into large businesses often remain in the community in which the business was first established. Having a large corporation headquartered in a community can further help provide employment and stimulate the local economy, creating a market that favors the development of additional small businesses.