SME stands for small and medium-sized enterprise. It describes a size category of business, rather than a particular legal structure. The limits depend on the country, program and purpose, and may combine staff numbers, financial measures and relationships with other businesses.
A neighborhood retailer, manufacturer or technology company could be an SME. The label alone does not establish eligibility for a loan, grant, tax concession or government contract.
The EU definition uses staff and financial tests
Under the European Commission’s SME definition, an enterprise must have fewer than 250 staff annual work units and either annual turnover of no more than €50 million or a balance sheet total of no more than €43 million.
Turnover means sales revenue; balance sheet total measures assets. The staff condition applies alongside at least one financial condition. A business does not have to satisfy both financial ceilings.
| Category | Staff annual work units | Annual turnover ceiling | Or balance sheet ceiling |
|---|---|---|---|
| Micro | Fewer than 10 | €2 million | €2 million |
| Small | Fewer than 50 | €10 million | €10 million |
| Medium-sized | Fewer than 250 | €50 million | €43 million |
These are upper ceilings, with smaller categories taking precedence when their conditions are met. Ten staff units are not “fewer than 10,” and 250 are not “fewer than 250.”
How the figures are counted matters
Staff annual work units measure work over a reference year, rather than simply counting everyone on one day. Part-time and part-year work count as fractions, with specific inclusions and exclusions.
Ownership also matters. Partner-enterprise figures may be added proportionately, while linked-enterprise figures may need to be included in full. A small subsidiary is not automatically excluded merely because it is a subsidiary, but it cannot necessarily be assessed using only its own figures.
The detailed EU rules also address reference periods. Crossing a size threshold generally changes status only after two consecutive accounting periods. The EU’s enterprise-size annex in Regulation 2026/562 sets out these counting, aggregation and reference-period provisions.
Two examples of the EU size conditions
Assume two fictional autonomous businesses have steady figures across the relevant reference periods and no ownership changes. Business A has 80 staff annual work units, €60 million turnover and €30 million in assets. It meets the illustrated SME size ceilings: its turnover is too high, but its balance sheet total satisfies the alternative financial test.
Business B has 250 staff annual work units, €10 million turnover and €5 million in assets. Its low financial figures do not overcome the staff ceiling. These examples explain the size tests, rather than decide qualification for a particular support program.
The United States has industry-specific standards
The US Small Business Administration’s size standards usually use employees or average annual receipts and vary by industry. They can include subsidiaries and affiliates. There is no universal 500-employee limit applying to every US business or SBA program.
For federal contracting, the SBA explains the relevant industry codes and averaging rules. Meeting a numerical ceiling is only part of qualification; other program conditions apply.
Statistics need a date and a scope
The World Bank describes SMEs as around 90% of businesses and more than half of global employment. These are broad estimates, not a harmonized worldwide legal definition.
The EU’s 2025/2026 SME report covers approximately 34 million SMEs. Its coverage expanded from about 26 million because it includes more economic sectors. That increase should not be presented as if all eight million additional firms were newly created businesses.
Last checked and updated on November 4, 2026 by the MBN editorial team.