Today’s topic is a brief introduction to SBA’s 8(a) BD Program. It is intended to provide general information about the program. If you would like more information please go to SBA.gov.
So what is the SBA’s 8(a) BD program? The 8(a) Business Development program was created through the Small Business Act to assist eligible small disadvantaged businesses to compete in the American economy through business development.
The SBA 8(a) BD program has a limited term of 9 years from the date of certification if the business maintains its eligibility during its tenure in the program. The applicants or Participants must inform SBA of any changes that would adversely affect its program eligibility. The program term may be shortened by termination, early graduation or voluntary withdrawal.
The SBA 8(a) program applicant must meet the basic requirements for admission to the SBA’s 8(a) BD program. The applicant must be a small business which is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of and residing in the United States and the applicant can demonstrate a potential for success. The potential for success was the number one reason that an applicant was turned down.
How do you know if you are a small business? Well SBA determines whether a business is large or small. They will only make this determination if there is a size protest on a federal contract. Luckily, they have regulations that can help us determine if we are a large or small business. I will not go into the specifics at this time but if you want more information research Title 13 of the Code of Federal Regulations (CFR) section, 121. There are two ways that SBA may determine a business’s size. The first one is by calculating the average number of employees of a 12-month period. The other way is the three-year average of gross receipts. Which method that SBA will use will depend on whether your business is a service-based business or manufacturing based business. If you are a service-based business, the SBA will use your three-year average of gross receipts. If you are a manufacturing business, then SBA will use the average number of employees over a 12-month period. SBA determines your size based upon your North American Industry Classification System called (NAICS) codes for short. Each NAICS code will have its own number associated with it. For example, if you are a general contractor with a NAICS code of 236220 then your three-year gross receipts need to be below $36.5 Million. However, if you are an electrical contractor with a NAICS code of 238210 then your three years of averaged receipts must be below $15 Million. If you mine for gold then your NAICS code would be 212221 and your average employees for a year would have to be below 1500 employees to be considered a small business.
So now that we know we are a small business we can go on to the next requirement.
Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities. The social disadvantage must stem from circumstances beyond their control.
There is a rebuttable presumption that the following individuals are socially disadvantaged:
Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, Subcontinent Asian Americans and members of other groups designated from time to time by SBA
If an individual is not a member of one of the designated groups than they may still qualify if they can establish individual social disadvantage by a preponderance of the evidence. The corroborating evidence to support his or her claims of social disadvantage must state the following elements:
- At least one objective distinguishing feature that has contributed to social disadvantages, such as race, ethnic origin, gender, physical handicap, long-term residence in an environment isolated from the mainstream of American society, or other similar causes not common to individuals who are not socially disadvantaged.
- The individual’s social disadvantage must be rooted in treatment which he or she has experienced in American Society, not in other countries.
- The individual’s social disadvantage must be chronic and substantial, not fleeting or insignificant and
- The individual’s social disadvantage must have negatively impacted on his or her entry into or advancement in the business world. SBA will consider any relevant evidence in assessing this element, including experiences related to education, employment, and business history.
- Education- SBA will consider factors as denial of equal access to institutions of higher education, exclusion from social and professional association with students or teachers, denial of educational honors rightfully earned, and social patterns or pressures which discouraged the individual from pursuing a professional or business education.
- Factors as unequal treatment in hiring, promotions, and other aspects of professional advancement pay and fringe benefits, and other terms an conditions of employment; retaliatory or discriminatory behavior by an employer, and social patterns or pressures which have channeled the individual into nonprofessional or non-business fields.
Now let’s discuss the next requirement which is Economically Disadvantaged.
Economically disadvantaged individuals are socially disadvantaged individuals who ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.
For initial SBA 8(a) BD eligibility, the net worth of an individual claiming disadvantage must be less than $250,000. For continued 8(a) eligibility after admission to the program, net worth must be less than $750,000. In determining net worth SBA will exclude the ownership interest in the applicant or participant and the equity in the primary personal residence.
Funds invested in an Individual Retirement Account (IRA) or other official retirement accounts that are unavailable to an individual until retirement age without a significant penalty will not be considered in determining an individual’s net worth.
Example: Business Equity $250,000
Equity in Home (your portion) $25,000
Retirement Accounts $50,000
Unadjusted Net Worth is $500,00 less business equity of $250,000 =$250,000. Less Equity in Home 25,000= $225,000. Less retirement accounts$50,000 equals adjusted net worth of $175,000.
If an individual’s adjusted gross income average over the last three years preceding submission of the 8(a) application exceeds $250,000 SBA will presume that the applicant is not economically disadvantaged. For continued eligibility, this number is increased to $350,000.
Unconditionally owned by one or more disadvantaged individuals.
The applicant or participant must be at least 51 percent unconditionally and directly owned by one or more socially and economically disadvantaged individuals who are citizens of the US.
Ownership by one or more disadvantaged individuals must be direct ownership. An applicant or participant owned principally by another business entity or by a trust that is in turn owned and controlled by one or more disadvantaged individuals does not meet this requirement.
Control is not the same as ownership, although both may reside in the same person. SBA regards control as including both the strategic policy setting exercised by boards of directors and the day to day management and administration of business operations. An applicant or Participant management and daily business operations must be conducted by one or more disadvantaged individuals.
The applicant or Participant must be managed on a full-time basis by one or more disadvantaged individuals who possess requisite management capabilities.
A disadvantaged full-time manager must hold the highest officer position and be physically located in the US.
One or more disadvantaged individuals who manage the applicant or Participant must devote full-time to the business during the normal working hours of firms in the same or similar line of business.
Potential for Success
The number one reason for applicants not qualifying for the program has been potential for success. The applicant must possess reasonable prospects for success in competing in the private sector if admitted to the 8(a) program. To do so, it must be in business in its primary industry classification for at least two full years immediately prior to the date of its 8(a) application, unless a waiver for this requirement is granted.
I have had more than one former 8(a) participant tell me they wish they would have delayed their entry into the program until they had sufficient workflow to sustain them while they marketed the 8(a) status to federal agencies. It is ultimately your business decision to make.
- The applicant must have good character.
- Debarred or suspended businesses or business owned by debarred or suspended persons are ineligible for admission to the program.
- Must have and maintain business integrity.
- The applicant cannot be currently incarcerated or on parole or probation
- There is a one-time eligibility for the business and a one-time eligibility for the applicant.
- Must be current with financial obligations owed to the Federal Government to include tax liens or defaults on Federal loans or Federally assisted financing.
Now is a good time to bring up the fact that Tribally-owned, Alaskan Native Corporations, and Native Hawaiian Owned businesses will not be discussed in this article.
We have discussed the eligibility requirements for the program. Now let’s discuss the reasons why you might want to apply for the program.
- Sole Source contract awards with no competition up to $4 million for Services and $6.5 Million for manufacturing businesses
- 8(a) competitive requirements above the $4 Million threshold
- Receive management and technical assistance, including business training, counseling, marketing assistance, and high-level executive development.
- Assigned an SBA Business Opportunity Specialist (BOS) to help you navigate the federal marketplace
- Form joint ventures with established businesses through a mentor/protégé program.
This has been a brief introduction to the 8(a) BD program. If you would like more information you can go to the SBA.Gov website. Or contact your local SBA office for a workshop on the 8(a) program.
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Next week we are going to discuss how to get the most from the 8(a) program.