Micro Businesses and Micro Enterprises: What Are They and How Are They Different?
Micro businesses and micro enterprises are essentially the same concepts, but they have a few key differences from traditional small businesses. In this article, we’re going to compare and contrast the different business models to better understand micro enterprises. We’ll explain how micro businesses can help individuals, families, and the economy, as well as cover some loan options for getting started.
Table of Contents
What Is a Micro Business?
While micro businesses are similar to small businesses, they typically have only one owner and a total of up to five employees, including the owner. Micro businesses are considerably smaller operations than the traditional small business. Examples might include:
- A coaching or consulting business
- An artist or crafter who sells homemade or sourced items on Etsy
- Street vendors
- Food truck or cart owners
The definition of a micro business varies depending on the country and their small business standards. In fact, the U.S. Small Business Administration states that there is currently no definitive definition of a micro business, but they are commonly known to have fewer than 10 employees including the owner and less than $35,000 in loan capital. One major factor that often defines a micro business is the owners inability to access conventional loan and banking choices either due to geographical restrictions, poverty, or a number of other reason.
Micro businesses have already made a huge impact on job growth, income, wealth creation, and quality of life for people in developing countries. As popularity spreads, they are redefining the American workforce and economy as a whole.
Due to the flexibility and upward mobility they offer, as well as the ability to manage your business on your terms, using your skills and passions, micro businesses are particularly beneficial to women and minorities.
What Is a Small Business?
Traditionally, small businesses are described as for-profit businesses that are independently owned and operated but do not dominate in the field. Small businesses typically have more employees than a micro business. They can have as many as 500 and still be considered small. There are currently over 30 million small businesses in the U.S.
What Is a Micro Enterprise?
While the terms are technically interchangeable, you will generally hear micro businesses referred to as a micro enterprise when describing small businesses in developing nations. Micro business is more commonly used to describe startups and small businesses in the U.S.
There is a big difference between a micro enterprise and a small business. Most small businesses in the U.S. have access to equity and capital, such as a permanent business address, an established brand, product or material, and real estate which gives them better access to the loans needed to expand and grow their business. However, a micro enterprise generally doesn’t have that access.
Especially in developing countries, where families don’t own land or real estate, they are totally dependent on their skills and abilities to generate any sources of income at all. They don’t have the leverage to ask for a loan or get backing easily if they need capital to fix a broken food cart or pay rent for a storefront, for example.
People who come from poverty, especially in developing countries, lack access to quality education, jobs, and training. Micro businesses allow an individual to use their strengths and passions to create income and upward mobility for their families. Not only do micro enterprises provide a livelihood for families in need, but they also boost the economy by creating more small business opportunities, providing jobs, and promoting commerce.
Micro Business Loans
One of the key factors of a micro business is the incredibly low cost it takes to get started, in some cases as low as $500 to get your micro enterprise up and running. Still, getting the funds or equipment needed to start any business can be a challenge. To get started, you might ask around for friends and family who might have an old computer you could buy off them or other resources that could be valuable to you. Thrift stores and sources like G Suite can also offer cheap or free tools and resources.
Micro businesses don’t take a lot to get started, but you still might need a small business loan depending on the needs of your work. Microlending is a term for granting very small loans to micro business owners, often referred to people in developing countries that need either a small loan or an item donated in order to start their business. Anybody can give you a microloan which can be a financial loan or gift or an item needed to run your business like a computer or a sewing machine. A microloan can be as small as $25, which can make all the difference for an entrepreneur in a developing country.
If you’re interested in a microloan to get your micro business started, first visit your bank or local financial institutions to get an idea for what they can offer you. In some cases, banks won’t approve a loan. You can check out other sources like Kiva or the SBA provided List of Lenders by state.
Image Source: https://depositphotos.com/
Tylene is a freelancer in Boise, Idaho. She's a self-taught personal finance hacker with zero debt. She eats avocado toast for breakfast.
This post was updated February 28, 2019. It was originally published December 11, 2018.