Most Common Types of Small Businesses

Any kind of small- or medium-sized business can benefit from having the right-sized working capital or small business loan. Credibly works with hundreds of small business types to find them the funding they need. It is most important to have the right type of loan for your specific business situation.

Below you’ll find some helpful examples of industries we serve, plus some ideas of what each can use the business capital for. (And these are just a few examples! We’ve helped many more industries get funding.)

What is a Small Business?

A small business is a privately-owned company that operates on a smaller scale compared to corporate entities. The size definition can vary by country, but in the U.S, the Small Business Administration (SBA) defines a small business as one with fewer than 500 employees. 

These businesses are typically characterized by their local operations, limited market reach, and smaller revenue. From local grocery stores to independent law firms, small businesses make up a significant portion of our economy.

Importance of Small Businesses in the Economy

Small businesses play a pivotal role in our economy. They foster local economies, providing job opportunities and contributing to regional development. With their innovative offerings, small businesses enhance market competition and encourage economic diversity. 

Small businesses also contribute to the tax base, supporting public services. Additionally, they often foster tight-knit communities, providing personalized customer experiences and contributing to the local character and culture. Ultimately, small businesses serve as the backbone of our economy, driving growth, innovation, and community development.

Types of Small Businesses: Find Your Niche

Small businesses come in various forms, catering to myriad markets and customer needs. These can range from retail stores, restaurants, and personal service providers to tech startups, consulting firms, and online businesses. When deciding on your small business, consider your skills, passions, and the needs of your potential customers.

Home-Based Businesses: Balancing Work and Life from Your Own Space

Home-based businesses offer the unique advantage of merging your workspace with your living space, allowing for a better balance between personal and professional life. 

They can range from online retail, consulting, and freelance services to home-based food services and tutoring. While these businesses offer flexibility and lower overhead costs, it’s important to maintain a distinct boundary between work and personal life, manage time effectively, and adhere to any zoning laws or homeowner’s association rules.

Franchising: Building Success on Established Brands

Franchising allows you to capitalize on the proven success of established brands. When you buy a franchise, you’re buying the rights to use a specific business’s brand, processes, and business model. 

It’s a way to start a small business with a roadmap already in place, reducing some of the risks associated with starting a business from scratch. However, it’s crucial to research thoroughly and understand the financial commitments, as franchising involves upfront fees and ongoing royalties. It’s also vital to choose a franchise that aligns with your interests and goals.

Service-Based Businesses: Meeting Diverse Needs in a Dynamic Market

Service-based businesses cover a broad range of sectors from IT solutions to cleaning services. They fulfill various needs in the market without the necessity of manufacturing or selling physical products. The startup costs are typically lower, and they allow for flexibility in work location and schedule. 

You’ll need to maintain strong customer relationships as service quality and customer satisfaction are paramount.

Online Small Business: From eCommerce to Digital Marketing

Online businesses, from eCommerce stores to digital marketing agencies, have become increasingly popular. They offer vast market reach, operate 24/7, and generally require lower startup costs. 

They come with challenges such as strong competition, technical difficulties, and the necessity of building a strong online presence. Your knack for digital trends and customer behavior online can fuel success in this realm.

Retail Businesses: Advantages and Disadvantages of Brick-and-Mortar

Retail businesses can offer a unique shopping experience that combines product interaction with personal customer service. They enable immediate gratification for customers and opportunities for upselling. 

However, they come with higher operational costs like rent and utilities, and must contend with factors like foot traffic and store location. A thorough understanding of your target market and a strategic location are key factors in the success of a retail business.

Manufacturing Small Businesses: Pros and Cons for Entrepreneurs

Manufacturing businesses create products to sell, offering control over product quality, and potentially higher profit margins. 

They require significant upfront investment in machinery, raw materials, and labor. Additionally, they must adhere to safety regulations and environmental standards. Careful planning, a solid understanding of the production process, and effective cost management are crucial for anyone interested in starting a manufacturing small business.

Consulting and Freelancing: Capitalizing on Expertise and Flexibility

Consulting and freelancing businesses allow you to capitalize on your expertise and provide a service based on knowledge and skills. They provide the flexibility to choose projects, clients, and work hours, and they often have lower overhead costs. 

You must consistently find clients, manage your business, and stay relevant in your field. Your success will largely depend on your ability to market your skills, build a strong reputation, and manage your time effectively.

Choosing the Right Type of Small Business for Your Entrepreneurial Journey

Choosing the right type of small business is an essential step in your entrepreneurial journey. It’s all about finding the perfect match between your passion, skills, resources, and market demand. 

Understand your target market, conduct a thorough business analysis, and be realistic about your financial capability. The business you choose should be something you’re passionate about and knowledgeable in, and should have the potential for growth and profitability.

Types of Small Businesses: Business Structure

Choosing a business structure for your small business is a critical decision that affects your legal responsibilities and tax implications. The common types are sole proprietorship, partnership, corporation, and limited liability company. 

Each structure has its own pros and cons. A sole proprietorship is the simplest, but the owner is personally liable for the business’s debts. Corporations offer liability protection, but are complex to set up and operate. A good understanding of each structure and a consideration of your business needs and future plans will help you make the right decision.

Sole Proprietorships: Simplicity and Control

A sole proprietorship allows you to have full control over your business. It’s the simplest form of business to set up and manage, which makes it a popular choice for new entrepreneurs. It’s also important to note that in a sole proprietorship, there’s no distinction between the owner and the business, meaning you’re personally liable for the business debts and liabilities.

Partnerships: Collaborative Business Ventures with Shared Responsibilities

Partnerships bring together two or more people to share the responsibilities and rewards of a business venture. They offer the ability to pool resources and talents, potentially making your business more robust. 

However, partners are jointly and individually liable for the actions of the others, so trust and clear communication are crucial for this type of business structure.

Limited Liability Companies (LLCs): Combining Flexibility and Protection

LLCs are a popular choice for small business owners because they combine the liability protection of a corporation with the tax benefits and operational flexibility of a partnership. This means the owners’ personal assets are protected from business debts and liabilities. 

An LLC can have one or multiple owners, known as members, who can be individuals, corporations, or even other LLCs.

Corporations: Establishing a Separate Legal Entity for Enhanced Liability Protection

Corporations offer the strongest protection to owners from personal liability, but they are more complicated and costlier to set up and run. 

As a separate legal entity, a corporation has its own rights, privileges, and liabilities apart from those of the individuals who own, manage, and control it. It also allows for easy transfer of ownership and attracts investors seeking shares of the company.

Cooperatives: Empowering Member-Ownership and Democratic Decision-Making

Cooperatives are unique in that they are owned and operated by the members who use their services. They operate on a democratic basis, with each member having an equal vote in the decision-making process. 

Cooperatives can be a good choice for businesses that aim to serve the needs of their members, but they require careful planning and strong member participation to be effective.

Key Factors to Consider When Deciding on a Type of Small Business

When deciding on your small business type, consider factors like the industry you’re interested in, your available capital, risk tolerance, and your long-term business goals. Consider the level of control you wish to maintain, your preferred level of involvement, and the level of liability you are comfortable with. Also, keep in mind the potential for growth and your exit strategy.

Maximize Your Chances of Securing the Right Loan, No Matter What Type of Small Business You Have

Are two businesses ever alike? At Credibly, we know they’re not. It’s why we offer comprehensive loan and financing options that meet your specific needs.

Get terms, conditions, and funding amounts that help you grow, not owe. We can help you secure a range of financing options, including:

• Small business loans
• Working capital loans
• Invoice factoring
• Equipment financing
• Merchant cash advances
• Business expansion capital
• And much more

Contact one of our loan experts below to go over your financing needs and understand your options.