Small And Midsize Enterprises - SME

What are 'Small And Midsize Enterprises - SME'

Small and midsize enterprises are businesses that maintain revenues, assets or a number of employees below a certain threshold. Every country and economic organization has its own definition of what is considered a small and medium-sized enterprise. In the United States, there is no distinct way to identify SMEs, but in the European Union, a small-sized enterprise is a company with fewer than 50 employees, while a medium-sized enterprise is one with fewer than 250 employees.

BREAKING DOWN 'Small And Midsize Enterprises - SME'

SMEs or small firms tend to be strong in the area of innovation. However, they struggle to attract capital to fund their endeavors, and in order to increase their chances of survival, various national governments and world organizations advocate implementing business education programs and increasing SMEs access to loans and government incentives.

SMEs in Emerging Economies

SMEs play a major role in most economies but a particularly significant role in emerging economies. SMEs create 80% of new jobs in emerging economies, and most people with formal jobs in these economies work for SMEs. However, over half of SMEs do not have access to the capital they need to grow. Rather than being able to access traditional loans, they rely on personal funds and loans from friends or families, a fact which hinders their growth.

SMEs in Canada

The importance of SMEs is not limited to emerging nations. Between 2002 and 2012, SMEs created 77% of new jobs in Canada, nearly the same percentage as in most emerging economies. These companies are vastly important to the country's well-being, both in terms of creating jobs and generating tax revenues. However, SMEs tend to have low survival rates, and in some cases, they fail to comply with tax reporting laws for a number of reasons. To remedy these types of issues, Canada and many other countries have implemented programs to coach SME business owners on how to make their businesses grow and survive. They also have special audit programs to target high-risk areas in order to boost tax compliance.

SMEs in the United States

For terms of tax reporting, the Internal Revenue Service does not categorize businesses into SMEs. Instead, it separates small businesses and self-employed individuals into one group and large to mid-size businesses into another. Small businesses are companies and self-employed individuals such as contractors and freelancers with assets of $10 million or less, and large businesses are those with over $10 million in assets.