The acronym, “SME” refers to small to medium-sized business.
While a broad generic definition can be taken for SMEs, some countries have a very specific definition for what types of enterprises can be called an “SME”.
SMEs are defined by three keywords - small, single and local:
Small: SMEs are small in nature - either in terms of number of (a) employees - 10 persons for ‘small’ to 200 persons for ‘medium’, depending on the country’s laws, (b) capital and assets - limited working capital and assets and (c) turnover - the overall turnover of the enterprise is small, compared to larger businesses.
Single: Most SMEs have a single owner who could also be the sole employee. While this may predominantly be the case, definitions set 250 to 500 employees as the limit for enterprises to be called an SME. The ‘single’ also refers to single products produced or service provided.
Local: SMEs are essentially local in nature - their market is usually localized to the area where they are located; or may be ‘local’ in the sense that they operate from a place of residence - also called SOHO (Small Office Home Office).
There are, of course, exceptions to the above. For example, SMEs while having a small output, can have a global market for its product/service or SMEs may produce more than one product or provide service.
SMEs are not limited to any particular type of industry or service, and can include small manufacturing facilities, small processing units, trading companies, export-import companies, distribution, retailing, rental, service companies, etc.
A key factor that distinguishes an SME from enterprises in the ‘Informal Sector’ is the fact that they are legally registered companies/businesses.