A microenterprise is a subcategory of small business that is specifically defined by a small number of employees, annual revenues, and start-up costs. Micro businesses are often run by sole proprietors, freelancers and side hustlers who start their business with very little operating and capital needs. Many business owners consider themselves a small business, when in fact they should identify as a micro-enterprise for proper growth and resource allocation. This becomes especially important when discussing financing options and growth programs.
How A Micro-Enterprise Works
A microenterprise is one of the smallest business entities that has much lower annual revenues and employees than the average small business. To maintain micro business status under the SBA, a company must:
- Employ one to nine employees including the owner
- Below are specific annual income numbers set by state and local governments, such as Vermont’s regulation of $25,000 in annual income4
- Have low start-up costs and capital needs consistent with the small-scale operations necessary to keep the business afloat
As previously mentioned, micro-enterprises often operate with a small team and tight resources. Maintaining a viable business could mean the need for expansion, and expansion requires additional capital to ensure success. Lumping micro-enterprises into the same category as small businesses would create unfair challenges and competition for micro business owners seeking financing opportunities.
Just like a small business has specific loan programs available to help them thrive, so do micro businesses. The SBA offers a microloan program that provides loans of up to $50,000 to help start-up and grow businesses and certain nonprofit child care centers. However, the average microloan is generally about $13,000. Loans from the microloan program can be used to finance working capital, stock or inventory, furniture or equipment, or finally machinery and equipment.
State Support for Micro-Enterprises
It can be very competitive for small businesses, including micro businesses, to get small business grants from the SBA. As a result, there are many state and local programs that provide assistance to micro businesses as well.
For example, Vermont offers the Micro Business Development Program to companies that have fewer than five employees and generate less than $25,000 in annual revenue. Through this program and others like it, micro-business owners have the opportunity to:
- Network with other entrepreneurs
- Take relevant courses on topics such as building a credit score and record keeping
- Get access to technology resources
- Work one-on-one with an experienced business advisor6
Also, keep in mind that many micro businesses operate as sole proprietorships and do not go as far as registering as LLCs or corporations, as many small businesses do. As a result, the micro-business owner is taxed at the tax rate shown on their personal tax return, as opposed to filing business taxes separately.