The government has a number of effects on the startup and operation of businesses of any size, but the most apparent effect the government has on small business is, perhaps, in the form of taxes. The government taxation department serves as a figurative double-edged sword to small-business owners: Tax breaks for corporations and business losses seem attractive, though they are quickly diminished when the business becomes highly profitable. Business taxes are a complex and intricate subject in which some individuals receive numerous college degrees, so it can be safely asserted that taxes are a major government effect on small business.

Grants and Loans

Some of the taxes collected from small businesses (as well as corporations and individuals) are actually reinvested into the small-business community in the form of grants and loans. Because small businesses account for a large percentage of the American job market, the government entity known as the Small Business Administration offers myriad financial incentives for starting and operating a business. Among the most common of these incentives are startup grants, which are particularly potent for nonprofit entities, and low-interest government-subsidized loans.


Of course, the effects of government on small business are not exclusively financial. Some government effects actually dictate the terms under which a business may behave, regulating such issues as marketing to children, approval of products and services, and general public welfare. A small-business owner who runs a restaurant, for example, may find government intrusion in the form of periodic health inspections, while the owner of a staffing, consulting or other professional service may find the government requires several professional licenses be acquired before the business is allowed to operate. Because new regulations are passed almost daily -- and old ones are only periodically retired -- it is difficult to summarize the entire spectrum of regulations to which any particular business maybe subject; business owners who suspect their business may be prone to regulation should contact their local and state business licensing contact for specific regulatory information.