California Small Business Statistics (2022)

California is the most populous state in the US, with the largest economy and local market compared to all other states. Indeed, if it were its own sovereign nation, it would be the world’s sixth-largest economy. 

Small businesses make up a significant portion of the California economy. They employ millions of people and account for the vast bulk of the state’s enterprises. They are necessary for the state’s survival.

Here are a couple of interesting small business statistics from the Golden State that should help aspiring entrepreneurs understand the state’s business landscape.

Quick California Small Business Statistics for Entrepreneurs

  • There are 4.2 million small businesses in California.
  • Small business employees account for 48.2% of all employees in California.
  • Veterans make up 3.5% of small business employees and own 4.6% of small businesses.
  • Women own 43% of small businesses in California.
  • Racial minorities make up 37% of small business employees and own 26.9% of small businesses.
  • Only 5% of venture capital goes to women business owners and only 1% to African American and Latino business owners.
  • In 2021, a CNBC study rated California dead last in terms of cost of living (48th) and cost of doing business (49th).
  • Small firms exported goods worth $66.4 billion in 2019.
  • There are 1,503 small businesses in the utilities industry, the smallest industry in the state.
  • Between March 2019 and March 2020, small businesses in California added 1.7 million jobs.

California Small Business Statistics

1. What is considered a small business in California?

According to California law, a small business is defined as follows:

“An independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and which, together with affiliates, has 100 or fewer employees, and average annual gross receipts of ten million dollars ($10,000,000) or less over the previous three years”.

Going by this definition, there are currently 4.2 million small businesses, comprising 99.8% of all California businesses.

2. How many Californians are employed by small businesses?

There are 7.2 million small business employees in California. They account for 48.2% of all employees in the state.

The minimum wage was raised to $14 per hour for firms with 26 or more employees and $13 per hour for employees with 25 or less employees beginning January 1, 2021. California will have the highest minimum wage in the United States in 2022, at $15 an hour. The state’s minimum wage has been increasing by $1 per year since 2017.

3. California small business statistics by industry

The professional, scientific, and technical services sectors have the majority of small businesses in the state operating in them, a total of 713,315. They are followed by the transportation and warehousing sectors, which harbor a total of 427,382 small businesses.

The utilities sector is the smallest in the state with only 1,708 small businesses operating in it.

4. California small business ownership by ethnicity

According to 2021 US Census data, California has a population of 39,237,836. Of those, 39% of residents are Hispanic, 36% are white, 15% are Asian or Pacific Islander, 6% are African American, less than 1% are Native American or Alaska Native, and 3% are multiracial. 

Here is a breakdown of how small business ownership is distributed among these ethnic groups:

  • White/ Caucasian — 2,924,852
  • Hispanic — 903,739
  • Asian — 812,495
  • Black or African American — 222,016
  • American Indian and Alaska Native — 18,073
  • Native Hawaiian and Other Pacific Islander — 14,439

5. California small business ownership by gender

The Annual Business Survey conducted by the Census Bureau shows that there are 1,541,927 women-owned small businesses and 2,279,714 businesses owned by men in California. There are also 179,196 small businesses that are owned by both men and women.

6. Business Taxes in California

California is widely regarded as a state with relatively high taxes. While taxes differ depending on the business entity, the common perception is that they are higher in California than in neighboring states.

According to the Tax Foundation, the top corporate income tax rate in the state is 8.84%, and the state’s overall business tax climate ranks 49th in the US. Individual taxes, which are levied on pass-through businesses (businesses that are not subject to the corporate income tax but report their income on the individual income tax returns of the owners) such as LLCs, are similarly substantial. Individual income taxes are levied at a maximum rate of 13.3%. 

The high tax load can be prohibitively expensive for some businesses, potentially forcing them out of the state.

7. Small business financing in California

California, according to state law enacted in October 2018, is one of the top places in the US where small business owners have access to multiple sources of capital funding. All small business lenders are required by state law to fulfill transparency criteria so that small business owners understand exactly what they’re getting into when they sign a business loan arrangement.

The following are the top sources of small business loans in California:

  • California Small Business Loan Guarantee Program: This program is managed by California’s Small Business Finance Center in collaboration with seven Financial Development Corporations (FDC). The Small Business Finance Center provides 80%–95% guarantees of the small business loans that FDCs lend directly to business owners. These loans can be as large as $20 million but they only come with guarantees of up to $2.5 million.
  • California Capital Access Program for Small Business: Also referred to as CalCap, this is a loan loss reserve program (money set aside by a bank to mitigate potential losses from unpaid loans or other receivables) that can provide up to 100% coverage for small business loans made by a participating California small business lender. Lenders can offer up to $5 million in small business loans, but they can only enroll up to $2.5 million per loan. Individuals can borrow up to $2.5 million in enrolled capital over a three-year period under the scheme.
  • Valley Economic Development Center: The VEDC is a major nonprofit small business lender that provides microloans and small business loans up to $500,000. Standard business loans, VEDC microloans, and microenterprise loans are the three types of VEDC small business loans. They are also exclusively offered to small enterprises in California and New York. Small business entrepreneurs in California searching for loans as small as $500 or as high as $500,000 should look into the inexpensive, transparent small business finance solutions offered by VEDC.

Other sources of small business funding in California include the Jewish Free Loan Association, Opportunity Fund (a nonprofit organization that provides finance to underprivileged small business entrepreneurs), and the Wells Fargo SBA Loans.

8. California small business failure statistics

According to the Small Business Administration, one out of every three small businesses fails during the first two years of operation. In California, the small business failure rate is substantially higher: according to Dun & Bradstreet, three out of every four California small businesses fail within the first two years, making California the state with the highest small business failure rate in the country.

9. California small business challenges

Apart from high taxes, here are some other challenges that plague small businesses in California:

  • Strict regulations: California is the most regulated state in the US. According to a study by the Mercatus Center at George Mason University, California has 395,129 regulatory restrictions. Regulations increase the cost of doing business while also slowing economic progress. As evidenced by the increasing number of enterprises departing the state, these regulatory issues might be the final straw. These laws have impacted not just small firms, but also large corporations like Tesla, Apple, and Nestle, who have relocated their operations from California to states with less-stringent business environments.
  • High energy costs: California also has some of the highest energy prices in the country. The US Energy Information Administration ranks California 46th for commercial operation energy cost per kilowatt hour (kWh). Only Alaska, Rhode Island, Massachusetts, and Hawaii are more expensive. Florida’s cost of $0.10 per kWh is close to half of California’s $0.18. High energy prices raise the cost of operating business, so it’s not surprising companies prefer states with lower energy costs.
  • High cost of living: Housing is the most visible manifestation of California’s exorbitant costs. The statewide median house price in April 2021 was $813,980, second only to Hawaii’s $950,000. High housing prices, exacerbated in part by restrictive zoning rules, as well as high prices for other products and services, make it difficult for those with low incomes to thrive in California.
  • Lack of proper registered agent services: Most small business owners in California are plagued by tax compliance issues, difficulties in filing their annual paperwork, and the numerous restrictions that are set by the state government. This is where a registered agent service comes in handy. Read my full review of the best registered agent services in California to know which one is best for your company.

10. California small business export statistics

According to the Census Bureau’s annual survey of US importing and exporting enterprises, 68,987 recognized firms shipped items worth $161.6 billion from California in 2019. Approximately 65,637 (or 95.1%) of the exporters were small businesses. Small enterprises shipped items totaling $66.4 billion, accounting for 41.1% of all recognized business exports.

The Final Word

These small business statistics should help every business owner or aspiring entrepreneur in the state of California understand what it takes to establish and run a business in the state. From multiple business regulations to quick access to business financing, the business landscape in the state is highly complex. 

Sources

Small Business Statistics By State

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