SMB, SME are acronyms that explain the size of companies and most small businesses fall into either of these categories. While the classification does not matter to everyday operations, understanding the classification of your business helps you in various ways. Here, in this guide, we list out the differences between SMB and SMEs, helping you identify the classification of your business. 

Why does the classification of your business matter? 

Several different definitions influence the classification into which the business falls. The most common practice is to classify a company based on its size – the number of employees, nature of the operation, annual revenue and more. A small business can further be divided into several subtypes.

One of the main reasons why you have to understand the classification of your business is that it helps in choosing the right technology products for your business. Most of the technology solutions are built based on these classifications and have different features that correlate to the classification.

Additionally, understanding the category under which your business falls helps you avail the right government-backed schemes that suit the nature of your business. 

Understanding the differences between SMB and SME

Strictly speaking, the difference between SMBs and SMEs are blurred. An SMB is a small-to-medium sized business, whereas an SME is a small-to-medium sized enterprise. Generally speaking, a company is usually associated with the service industry, where an enterprise is involved in manufacturing.

Some of the common SMBs in India include – restaurants, cafes, retail outlets, grocery stores, traders, travel agencies, spas, salons, auto garages and more. Some of the familiar SMEs in India include cottage-industries, small-scale manufacturers, and other enterprises that produce a manufactured product.

The Official Definitions: SMB and MSME 

Small and medium scale businesses in India are those where the investment, machinery and types of equipment are between Rs. 10 lakhs and Rs. 5 crores. When it comes to enterprises in the manufacturing sector, the limits are from Rs. 25 lakhs to Rs. 10 crores.

The definitions are based on Section 7 of the MSMED (Micro, Small and Medium Enterprises Development) Act of 2006. Organisations that do not fall under these categories are considered as large-scale businesses/enterprises in India. 

Additional Reading: Different Types Of Business Loans

As per the MSMED Act, organisations are classified into two types:

  1. MSME (Manufacturing Enterprises) 

These are companies that are engaged in the production and manufacture of goods pertaining to an industry that is mentioned under the first schedule of the Industries (Development and Regulation) Act of 1951. These enterprises use plants and machinery to produce a final product that has a specific name. 

Manufacturing Sector (MSMEs)
Classification Investment Limits
Micro Does not exceed Rs. 25 lakhs
Small Between Rs. 25 lakhs to Rs. 5 crores
Medium Between Rs. 5 crores to Rs. 10 crores

 

  1. SMB (Service Businesses) 

These are businesses that are engaged in providing services. The nature of the business can be any of the following – sole proprietorship, partnership, company, co-operative, association and more. 

Service Sector (SMBs)
Classification Investment Limits
Micro Does not exceed Rs. 10 lakhs
Small Between Rs. 10 lakhs to Rs. 2 crores
Medium Between Rs. 2 crores to Rs. 5 crores

 

Note that these definitions do not consider the number of persons employed by the business, nor the electricity consumed – all of which were defining criteria in the past.

Proposed Amendments

In 2015, the Ministry of MSME proposed some amendments to the existing definitions. As per the proposed definitions, the limits for both the manufacturing and service industries will be increased.

Manufacturing Sector (MSMEs)
Classification Current Investment Limits Proposed Investment Limits
Micro Does not exceed Rs. 25 lakhs Does not exceed Rs. 50 lakhs
Small Between Rs. 25 lakhs to Rs. 5 crores Between Rs. 50 lakhs to Rs. 10 crores
Medium Between Rs. 5 crores to Rs. 10 crores Between Rs. 10 crores to Rs. 30 crores

 

Service Sector (SMBs)
Classification Current Investment Limits Proposed Investment Limits
Micro Does not exceed Rs. 10 lakhs Does not exceed Rs. 20 lakhs
Small Between Rs. 10 lakhs to Rs. 2 crores Between Rs. 20 lakhs to Rs. 5 crores
Medium Between Rs. 2 crores to Rs. 5 crores Between Rs. 5 crores to Rs. 15 crores

 

*However note that the proposed amendments have not yet been passed by parliament.

The Role of SMBs and SMEs in India 

SMBs and SMEs are the backbone of the Indian economy. They play a crucial role in uplifting the economy of the nation while providing employment to millions of Indians, especially in the rural and semi-urban regions of the country. 

According to the 2015-16 Annual Report prepared by the MoMSME (Ministry of Micro, Small and Medium Enterprises), India is home to more than 51 million MSMEs and SMBs with fixed assets worth over 14 lakh crore INR. The report also states that MSMEs and SMBs contribute more than one-third (37.5%) to the overall GDP of the country.  

Of this, 7% is from SMEs involved in manufacturing and the rest 30.5% comes from SMBs that are included in the services industry. These numbers indicate the vital role played by SMBs and SMEs in the growth of the nation's GDP.

Besides fuelling economic growth, SMBs play a crucial role in the regional development, especially in rural and semi-urban sectors. The SMBs and SMEs in India are driven by passionate entrepreneurs and operate with limited infrastructure and capital. As a result, they are able to contribute to the economic development of the nation from across all corners. 

Recognizing the crucial role of SMBs and SMEs in India, the Government of India has launched several initiatives to propel their growth. The government offers various schemes that make it easy for small businesses and enterprises to avail low-cost capital. Besides improving access to capital, the government offers several other programs boost skills and technological awareness.

Additional Reading: SME Loan

EndNote

The Next Steps: Understand the Classification for Relevant Benefits 

While the differences between SMBs and SMEs may seem minor, understanding it is essential for the better operations of the business. Being aware of the right classification helps you choose the right technological solutions, benefit from the various government schemes and get relevant funding from lenders.