---
title: "Small Businesses in America"
description: "The center of gravity for the U.S. economy revolves around the S&P 500, announcements from the Fed, and quarterly results of the largest publicly traded…"
url: https://www.independentpress.com/article/small-businesses-in-america
date: 2026-06-18
categories: ["Business","Economics"]
author: "Lorenzo Govoni"
---

# Small Businesses in America

![photo-1701921729931-28722c1b747e](https://images.ctfassets.net/ewtdlsoyixc1/7HuT2vUnkqs0MjNrVJEZZC/07882566fa5857713385689175570f84/photo-1701921729931-28722c1b747e.avif)

The center of gravity for the U.S. economy revolves around the S&P 500, announcements from the U.S. Federal Reserve Board, and the quarterly results of the largest publicly traded companies. But all the focus on public markets obscures the importance that small businesses play within the American economy. According to February 2026 data collected by the [U.S. Small Business Administration](https://advocacy.sba.gov/2026/02/03/advocacy-releases-frequently-asked-questions-about-small-businesses-2026/), 43.5% of U.S. Gross Domestic Product (GDP) is produced by small businesses. 62.3 million people, or 45.9% of all U.S. private sector workers, are employed by small business. And, of the more than 36.2 million business operating in the United States, 99% percent of those businesses are small.

**The History of Small Businesses in America**

Beyond being fundamental to a growing U.S. economy, small businesses are philosophically engrained in America’s founding. Guided by the Age of Enlightenment, Thomas Jefferson, the third President of the United States and primary author of the Declaration of Independence, embraced the vision of a “[Yeoman Republic](https://www.americanheritage.com/myth-happy-yeoman)” built on self-sufficient yeoman farmers and independent tradesmen. Teachings from the Enlightenment hold that true political liberty is only achieved through economic independence. Ownership over a trade or a plot of land frees citizens from the coercion of employers and helps develop the civic virtue in citizenry necessary for sustaining a self-governing democracy. Belief in the Yeoman Republic has shaped America and its economic policy for generations.

During the Industrial Revolution, small businesses supplied components to large manufacturers, moved finished goods to consumers, provided specialized trades like carpentry and tailoring, and filled niche industries that larger firms couldn’t efficiently serve. Waves of immigrants from Ireland, Italy, China, and Eastern Europe came to the United States during the 18th and 19th centuries bringing small business enterprise and entrepreneurship that helped build and anchor Main Streets across America. The Great Depression and World War II hit small businesses hard, as tens of thousands collapsed. In July 1953 under U.S. President Dwight D. Eisenhower, the Small Business Act was passed which established the Small Business Administration (SBA) to “aid, counsel, assist and protect” the interests of small business.

In the post-industrial period, as manufacturing has moved overseas and the U.S. has transitioned to a service economy, small businesses have continued to evolve. The internet’s rise in the 1990s and 2000s leveled the economic playing field allowing small businesses to compete with major corporations from any location in the world. The 2020 Covid-19 pandemic brought about a dramatic transformation in the work environment leading to the creation of millions of new small businesses. Between 2021 and 2024, the [SBA](https://www.sba.gov/article/2024/01/11/new-business-applications-reach-record-16-million-under-biden-harris-administration) recorded 16 million new business applications. As Artificial Intelligence has gained traction, small businesses have adapted by using AI to cut costs and offer additional services to customers.

**Scale, Structure, and Markets**

Though it can vary by industry, a small business is typically defined by the SBA as a firm with 500 or fewer employees or less than $7.5 million in annual revenue. Of the more than 36 million small businesses in the United States, roughly 30 million have no W-2 employees and are operated by freelancers, sole proprietors, or independent contractors. California leads the U.S. with over 4.3 million registered small business, a number that is buffeted by the Bay Area’s venture-tech ecosystem. Texas and Florida follow, both states benefited from having no state income tax, a pro-business environment, and an influx of people migrating from higher-cost states California and New York. 

Companies in the service industry, including healthcare, accounting, legal, and retail sectors, dominate the small business universe accounting for approximately 70% of all small businesses. Companies in the service sector hold a competitive advantage in that they require less startup capital, can be launched by a single practitioner, and depend on local relationships that insulate them from national competition. The healthcare and social assistance sector is the largest small business employer, employing 9.26 million workers. It is one of the most resilient small business sectors as measured by survival rate because demand in healthcare and social services is largely non-discretionary, a significant portion is government-reimbursed, and the work is inherently local. Around 5 million small businesses operate in the professional services industry, which comprises the legal, accounting, consulting, and engineering sectors. Professional services firms benefit from long-term client relationships and provide expertise that larger competitors cannot easily replicate or undercut. 

**Half of All Small Businesses Fail **

According to 2024 data from the [U.S. Bureau of Labor Statistics (BLS)](https://www.bls.gov/bdm/bdmage.htm), around 20% of new businesses fail within their first year. By the end of year five, almost 50% of all small businesses will go out of business. By the end of year ten, around two-thirds of all small businesses will fail. The information sector, encompassing media, software, and digital publishing, carries the worst long-term survival rate of any major U.S. industry, with only 29.1% of companies in the information sector surviving ten years or longer due to intense competition and the winner-take-most dynamics of digital markets. [Cash flow](https://fortunly.com/articles/what-percentage-of-small-businesses-fail/) is the primary reason cited by small business for failure. The second most cited reason for small business failure is a lack of genuine market need. Rather than mismanagement, many small businesses fail because of miscalculation, overestimating demand or willingness of consumers to pay.

Research on what separates those small businesses that fail from those that survive points to the background of founders and to the market focus of the business. Financial literacy shows up repeatedly as the most important entrepreneurial trait for founders. Business owners who understand unit economics, burn rates, and break-even points tend to be more successful in the long term. Experience matters. A study conducted by [MIT Sloan](https://mitsloan.mit.edu/shared/ods/documents?PublicationDocumentID=6212) found that businesses run by founders under 30 fail at roughly twice the rate of those run by older founders, with peak success rates around age 45. Niche market focus is also important. Small, durable businesses tend to serve a well-defined customer base and solve a specific problem better than anyone else. Small businesses that try to serve everyone usually end up serving no one particularly well. 

**The Future of Small Businesses in America**

The post-pandemic period has been the most dynamic era in the history of American small business. Record new business applications, the mainstreaming of remote work, and the rapid diffusion of AI tools have collectively reshuffled the competitive landscape for small business owners. The 36.2 million small businesses recorded by the SBA's February 2026 small business data represent the largest total in U.S. history.

Despite record tallies, small businesses continue to face headwinds from higher interest rates and post-pandemic challenges such as [elevated input costs](https://www.wsj.com/business/entrepreneurship/u-s-small-business-confidence-ticked-down-in-may-b087f8d3) and [ongoing labor shortages](https://www.nfib.com/news/press-release/nfib-jobs-report-small-business-job-openings-decline/). A May 2025 [national survey by the U.S. Federal Reserve](https://www.fedsmallbusiness.org/about/media/2025/fed-survey-small-business-pandemic-recovery-20250327) suggests that small businesses are struggling with rising costs and debt levels. Data from [Epiq AACER](https://www.epiqglobal.com/en-us/resource-center/news/first-quarter-subchapter-v-small-business-filings-increase-67-over-previous-year) indicates that subchapter V elections within Chapter 11 for small businesses increased 67% in the first quarter of 2026. At the same time, total bankruptcy fillings increased 16% year-on-year from March 2025. 

Artificial intelligence has presented an emerging opportunity for small businesses, with early adopters reporting real efficiency gains. AI agents, AI-assisted bookkeeping, automated customer service, and AI-generated marketing capabilities have begun providing significant operational cost savings. Capabilities which once required the budget of a large corporation are now accessible to small businesses. According to 2025 data from the [U.S. Chamber of Commerce](https://www.uschamber.com/technology/empowering-small-business-the-impact-of-technology-on-u-s-small-business), 58% of small businesses state using generative AI and 82% of small businesses report using AI to increase their workforce. If AI adoption rates continue, it could improve the survival rates of small businesses and help small businesses take market share from larger competitors.

**Conclusion**

Since America’s founding, small businesses have been a fundamental part of the nation’s democratic institutions and economic success. Small businesses compose 99% of all businesses in the United States, contributing 43.5% of the nation’s GDP and 45.9% of the nation’s private sector workforce. Over the last 25 years, small businesses have been responsible for [generating 66% of the net new employment](file:////Users/edwardnovicky/Library/Mobile%20Documents/com~apple~CloudDocs/Independent%20Press/Lorenzo/Over%20the%20past%20few%20decades,%20small%20enterprises%20have%20been%20responsible%20for%20generating%20roughly%2060%2525%20to%2066%2525%20of) growth in the U.S. economy. For investors, advisors, and policymakers alike, it is critical to understand the importance of small businesses to America’s ethos as a country and to American economic prosperity. Founding Father, Thomas Jefferson championed independent artisans and small farmers opining that small businesses were the backbone of democracy in the United States. As [Jefferson stated](https://press-pubs.uchicago.edu/founders/documents/v1ch4s9.html) in _Notes on the State of Virginia_, his only full-length book, dependance on large corporations causes "subservience and veniality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition.”