Leaving the 8(a) BD Program can be just as difficult as entering the program. Today, we will be going over the Termination process and discuss the reasons why SBA may want to proceed with terminating your business from their program. SBA cannot just decide to let someone out of the program. They must demonstrate “good cause” in order to do so. We are going to go through the reasons that SBA may use to remove someone from their program. Remember that these examples are no all-inclusive. SBA can use these grounds and other information it has obtained to strength its case.
SBA will look at the “totality of circumstances” when basing a decision. In other words, they do not look just at one thing to decide. They will look at everything to make a recommendation.
Submitting False Information
The first good cause that we are going to discuss is “Submitting False Information” to SBA. If you submit false information to SBA it could lead to termination regardless of whether the correct information would have caused you to be denied admission to the program. Also it is regardless of whether the correct information was given to SBA in accompanying documents or by other means.
Maintain Program Eligibility
The second cause has to do with maintaining your program eligibility. In order to stay in the program, the 8(a) firm must maintain its program eligibility. If the disadvantaged owner or manager fails to meet the program requirements this is a reason for termination. What SBA is talking about here is your economic disadvantaged.
As a reminder, for entry into the program your personal net worth must be below $250,000 excluding the equity in your business, and home. Also, you 401K will be excluded if you are not eligible for withdrawals.
Death of Disadvantaged Individual
The third reason is if the disadvantaged individual dies before program completion. This one would seem obvious. However, every year SBA has a disadvantaged individual(s) that pass away while in the program. It is heartbreaking for everyone. That is why it is essential for a small business owner to have designated someone whom will take over the business in your absence.
In addition, the disadvantaged individual must maintain ownership, full-time day-to-day management, and control.
Failure to Obtain Written Approval From SBA
Small business owners are not used to asking someone permission to change their business structure, or organization. However, if you fail to obtain SBA’s blessing you may find that SBA will move forward with termination. Why? Because the business was accepted as it was. Does that mean you cannot make any changes? No, you can make the changes if you notify SBA in writing and work on a change with them.
Management of the Business
The disadvantaged individual(s) upon whom eligibility was based must manage and control the business. The disadvantaged individual(s) cannot let the non-disadvantaged individual(s) take over the business and make all the decisions. If they do, then SBA will have no choice but to remove the business from the program.
SBA expects all small businesses that are certified in the 8(a) Business Development program to have good character. Does this mean that you cannot come into the program if you had a felony in the past? No, you may still be able to come into the program. It all depends on the type of felony and how long ago it transpired.
Not Responding to SBA Requests
You need to think of SBA as your business partner. Responding to SBA’s requests within the time frame given will make things easier for you and them. The disadvantaged individual(s) will generally know when SBA will be requesting information. If something comes up, give your Business Opportunity Specialist a call and get an extension. They are good to work with in almost all circumstances. There may be times when they cannot grant the extension. I have found a lack of communication either on SBA’s part or the 8(a) firm’s part can cause issues. Therefore, always keep the communication open.
Closing the Business
Before you close your business make sure to contact SBA and ask to be withdrawn from the program. In SBA’s eyes it is your responsibility to keep SBA informed on what is happening with your business.
Not Meeting Your Business Activity Targets
If you will recall, we discussed in previous blogs that starting in year five an 8(a) BD business must meet Business Activity Targets called BATS. This means that a business must have 15% of its revenue outside the 8(a) BD contracts. That is why your Business Opportunity Specialist will be discussing this objective with you throughout your tenure in the program. So, what happens if you don’t meet these requirements? Well, SBA has a couple of choices. One is to put you on a remedial plan to help you. If that fails, then SBA can start termination proceedings.
It is important to work on developing your commercial and government work at the same time and not concentrating on just government work. Though you may request a waiver there is no guarantee that SBA headquarters (AA/BD) will approve the request for not meeting your BAT.
Unauthorized Use of SBA Guaranteed Loans Proceeds.
SBA expects 8(a) firms to use their loan proceeds according to their SBA Loan agreement. If they fail to do so SBA may elect to terminate the business from the SBA 8(a) program.
Submitting False Information To SBA
Remember earlier when we were talking earlier about the totality of circumstances? This is where we can combine submitting false information to SBA and having good character. If you submit false information to SBA does that mean you don’t have good character? SBA may argue yes.
What if my business is Debarred, Suspended, Voluntary Exclusion or ineligibility?
Then your business would not be eligible for the 8(a) BD program.
If your business, or any of its principals show a lack of business integrity then SBA can seek termination. They will also look into any criminal indictment, guilty plea, a criminal conviction or judgement or settlement in a civil case. Remember that SBA will combine any of the items we discussed so far together to build their case.
Applying With Labor Standards & Obligations
Make sure that you apply with all applicable labor standards and obligations. This is great advice even if you are not in the 8(a) program. Staying a straight and level course is best in all business matters.
Material breach of any terms and conditions of the 8(a) BD Program Participation Agreement.
When you are accepted into the 8(a) program you will be directed to sign the 8(a) BD Participation Agreement. This Agreement will outline the rules and list regulations that a participant must comply with while in the program. Many of the above items we discussed are also listed in this agreement. Take your time and read the agreement. If there is anything you do not understand please contact your assigned Business Opportunity Specialist and ask them to explain them to you.
One of the first things I suggest that all newly certified 8(a) firms do is to download SBa’s Standard Operating Procedures (SOP) 80 05 5 that governs the 8(a) BD program. This regulation goes into detail about all the items we have discussed today.
The above examples of good cause are intended to be illustrative only. Other grounds for terminating a Participant from the 8(a) BD program for cause may exist and may be used by SBA.
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