The 8(a) Business Development Program is a business assistance program for small disadvantaged businesses. The 8(a) Program offers a broad scope of assistance to firms that are owned and controlled at least 51% by socially and economically disadvantaged individuals.
The 8(a) Program is an essential instrument for helping socially and economically disadvantaged entrepreneurs gain access to the economic mainstream of American society. The program helps thousands of aspiring entrepreneurs to gain a foothold in government contracting.
Participation in the program is divided into two phases over nine years: a four-year developmental stage and a five-year transition stage.
The overall program goal is to graduate 8(a) firms that will go on to thrive in a competitive business environment. There are some requirements in place to help achieve this goal. Program goals require 8(a) firms to:
To make sure 8(a) firms are on track to accomplish their goals and are following requirements, the SBA district offices monitor and measure the progress of participants through:
In addition, 8(a) participants may take advantage of specialized business training, counseling, marketing assistance, and high-level executive development provided by the SBA and our resource partners. You can also be eligible for assistance in obtaining access to surplus government property and supplies, SBA-guaranteed loans, and bonding assistance for being involved in the program.
Generally, to be approved into the 8(a) Program and become certified you must meet these basic eligibility requirements:
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Keep in mind that each 8(a) Application is unique and document requirements vary for each 8(a) Application. Below is a general list of items that will need to be included within your application. Your unique application may require additional items not specified below.
Once you submit your 8(a) Application to the SBA for review, you will typically receive an email within 2 business weeks that identifies your SBA reviewer. Your SBA reviewer, may at this time, request additional information to answer any questions they may have. This is a normal practice by the SBA. Once the SBA has determined that your 8(a) Application is deemed complete, it will take approximately 90 days to be notified of formal 8(a) Certification by the SBA.
A business that receives 8(a) Certification may a program term of nine (9) years from the date of approval. The business must maintain its 8(a) Program eligibility during its time in the program and must inform the SBA of any changes that would adversely affect is eligibility. A business that completes it 9 year term is deemed to graduate. The 9 year term may be shortened only by termination, early graduation or voluntary graduation.
If your firm has not been in business for two (2) full years with sufficient revenue shown on its filed tax returns for the last 2 years you can possibly seek a length-of-time in business waiver if you meet the following minimum conditions.
1. A resume that shows that the 8(a) applicant has significant managerial and technical skills needed to operate the firm.
Note. If licenses or certifications are required by the business the applicant for 8(a) Certification must be the qualifier and provide proof of such license or certification.
2. At least (one) 1 year of filed company tax returns with sufficient revenue (e.g. 75-100K) earned in the primary NAICS code in which you are seeking 8(a) Certification.
3. Proof of multiple completed and ongoing contracts that clearly show operating revenues being earned in the primary NAICS code in which you are seeking 8(a) Certification.
Note. If your contract revenue earned from inception shows that you have earned more than 70% of your total revenue from one (1) billable client you will not be able to apply.
Your past and current contract mix must show that you have earned and are earning less than 70% of your total revenue from one of your billable clients.
Note. The 70% rule does not apply if your direct billable client is a federal, state or local government agency.
4. Copies of all paid invoices to support the operating revenue earned from the contracts.
5. Copies of all business bank account statements that prove the operating revenue earned has been deposited in the business bank accounts.
6. The business must have, in the bank, working capital to support its ongoing operations for at least 3 months with its current monthly burn-rate. A business line of credit in lieu if not enough liquid working capital may suffice.
7. At least two to three reference letters from past and current clients directly addressed to the applicant.
Economic Dependence is a significant obstacle to the eligibility of many applicants desiring to gain 8(a) Certification for their firms. In fact, it is currently the issue for which we have to turn the greatest number of potential applicants away, until the issue is resolved.
First, a little history on the Economic Dependence issue, or the 70% rule as we often refer to it. Per the Faison Office Products Office of Hearings and Appeals case in 2007, an applicant can be found to be dependent upon a single non-government entity if that entity constitutes 70% or more of the total revenues.
Businesses frequently start with a single client. The application of this rule, and the timeframe for calculating this percentage, makes this an issue that must be examined closely.
In the past, such figures have been calculated by the SBA Area Size Manager over the previous fiscal year, or over the last 12 months. The Size Manager will review the last three years of revenues, and thus revenue history even out beyond the last 12 months may be a factor in the final determination. However, the 2013 OBTek OHA case found that the SBA could not reach into the past to determine this economic dependence, if the applicant “can prove, by clear and convincing evidence, that its interests are separate from those of the other concern”. The applicant met that burden. In this case the court found against economic dependence due to the fact that the applicant’s revenues from a single entity had diversified to below 70% (only 18%), over a period of one month, which was the month immediately prior to certification.
This case continues to change the understanding of this issue, and its impact on 8(a) eligibility. For some potential applicants, this means that this issue may be overcome in a relatively short time period, depending upon the circumstances. This case implies that the month immediately prior to application must demonstrate that there is not a 70% issue based on the revenues deposited in the company bank account. This should also be true during the month that a firm applies, and be able to be sustained for the duration of the application processing period, which can be six months or more. The SBA reserves the right to request updated information at any time during the application process.
However, the OBTek OHA case had a very specific set of circumstances, which may not match the scenario of each potential applicant. If you think that your firm may face a challenge on the 70% issue, we recommend that you speak to a qualified consultant before determining whether to proceed with an application for 8(a) Certification.
The risks are greater than merely a denial of 8(a) Certification. If a firm is found to be economically dependent upon another entity, and a resulting size determination concludes that they are other than small, that would exclude the firm from being recognized as a small business for the purposes of contract awards. This could be devastating to a small business.
To determine if you meet the 70% rule. Visit our blog posting to see an easy flow chart that will help identify any issues you might have.
Among the many 8(a) business development program eligibility requirements, the applicant for 8(a) Certification must have a personal adjusted net worth of less than $250,000 at the time of 8(a) Application submission.
The algorithm used to determine Adjusted Net Worth for 8a Certification purposes is:
Adjusted Net Worth = Personal Assets – Personal Liabilities – [Equity in primary residence + value of ownership interest in applicant business + value of any IRA/401(k) or other retirement account that is subject to a penalty for early withdrawal]
If the applicant is married and the asset or liability is jointly held, you split the value 50/50. If the applicant is married and lives in a community property state, you only split assets and liabilities 50/50 if you have a transmutation or pre/post nuptial agreement that states otherwise.
How can I determine my Adjusted Worth?
You can easily determine your Adjusted Net Worth by using our adjusted net worth calculator.
What is required to be submitted within the 8(a) Application to prove the applicant’s Adjusted Net Worth?
Each applicant, and their spouse, must submit a separate SBA Form 413, Personal Financial Statement. Along with the SBA Form 413 you must also submit statements for each asset or liability supporting the amounts reported. These statements cannot be any older than 30 days at the time of 8a Application submission.
Are there any ways to reduce an applicant’s Adjusted Net Worth below the $250,000 threshold?
For more information, contact us.
*Important* You cannot transfer an asset out of the applicant’s name within two years of the time your apply for 8(a) Certification for less than fair market value. Doing so will result in the full amount of the asset being re attributed back to the applicant.
When you apply for SBA 8(a) Certification, the individual who is claiming disadvantaged status must be able to provide a narrative statement of economic disadvantage as just one of the many items to be included in their 8(a) Application.
I have spoken to countless clients who typically think this is the hardest part of their 8(a) Application and dread having to come up with, recall and reflect on how their ability to compete has been impaired due to discriminatory practices against them due to their identification as a member of their SBA designated group.
HERE IS A QUICK GUIDE TO ASSIST YOU TO UNDERSTAND WHAT THE ECONOMIC DISADVANTAGE NARRATIVE IS
WHAT IS THE ECONOMIC DISADVANTAGE NARRATIVE:
The Economic Disadvantage Narrative is a series of statements where you describe, in detail, your personal experiences stemming from actual or perceived prejudice or bias you have experienced. These experiences must have been occurred in American Society.
THE SIX AREAS:
There are six areas that the SBA requires that you consider when providing experiences of actual or perceived prejudice or bias that have affected your business life are:
1 – Bonding
2 – Credit or Financing
3 – Licenses
4 – Leases
5 – Market Restrictions
6 – Underemployment/Unemployment
Note – Some of these areas may or may not apply to your business life. If they do not, skip to the next area. Remember these important facts about what you are about to describe, (1) you must be able to describe at least one major negative experience to convince the SBA that you have subjected to unfair economic disadvantage, and (2), connect it back to your distinguishing feature, whether it is race, gender, ethnicity, handicap or culture.
The SBA will not accept the justification that you have been discriminated against because you are a small business and “can’t compete with the big guys” or your credit was not good enough to get a loan or line of credit.
SOME QUESTIONS TO ASK YOURSELF WITHIN THE SIX AREAS:
1. Have you or your company ever been denied a performance or any other type of bond needed to acquire or perform your work?
2. Was the level of bonding that you have received less favorable in amount and terms than that of other similar companies who are not socially disadvantaged?
Credit or Financing:
1. Have you or your company ever been denied the required credit or financing needed to acquire necessary equipment, etc. or to finance the ongoing operations of your firm?
2. Were the terms (e.g. interest rate, collateral, etc.) of this financing less favorable than those received by similar companies who are not socially disadvantaged?
1. Have you or your company ever been denied a license required by you to conduct business?
2. Have you or your firm ever had a necessary license revoked?
1. Has your firm ever been denied a real or tangible property lease?
2. Were the terms of your leases less favorable than those received by similar companies who are not socially disadvantaged?
1. Have you or your firm ever been denied access to a client or to bidding on a contract opportunity?
2. Has your firm ever been rejected for a business opportunity on terms that were different than those provided to other similar firms that were not socially disadvantaged?
1. Have you ever been denied employment or advancement opportunities that have had a negative impact on your economic situation?
2. Have you ever been discharged, fired or downsized on terms that were different than those provided to other equivalently qualified individuals?
If you answered YES to any of the questions above or have ever experienced any other form of perceived prejudice or bias in the areas above you will need to answer the questions below:
What were the dates or periods of time over which the above prejudice or bias occurred? (You must be as specific as possible (e.g. January, 2013, January through March, 2010, Fall of 2008, etc.)
Who are or were the person(s) and/or entities (i.e., organizations) involved and their respective positions or titles (You must be as specific as possible (e.g. first and last name, title, name of company. If you cannot remember exactly, please provide as much information as possible and state to the best of your recollection. Do not make up any names.)
Identify and describe the specific instances that you claim represent the substantial and chronic prejudice or bias you have identified above? Be very specific, using the “street language” that may have been used.
What specific actions are being taken or were taken by you to overcome the effects of the prejudice or bias experienced by you or your company? (e.g. filed lawsuit, threatened lawsuit, wrote letter/email requesting reasoning, etc.)
Identify and discuss the specific negative impact (economic, loss of professional development, damage to your personal or company reputation) on you and/or your firm on the entry or advancement in the business world because of this disadvantage experienced by you. (You must be as specific as possible, e.g. the loss of revenue, profits or salary in actual dollar amounts.)
What type of physical evidence will you or can you provide to substantiate your claims of prejudice or bias? e.g. court or administrative findings, affidavits, documents related to rejected bonding, contemporaneous records memorializing meetings, conversations, negotiations, telephone calls, a letter or two from a co-worker that observed the above incident)
What additional facts do you consider relevant to claiming and/or evidencing the prejudice or bias that you claim? (For example, were there other incidents involving others who may have been subjected to the same types of prejudice or bias as you, if so, be specific about the name of the company, individuals, titles, dates, things said/done, minority/non-minority, etc
View our sample economic and social narratives of disadvantage. They are actual narratives that have been approved by the SBA. The names have been changed to protect the identity of the individuals but will give you a good idea of the level of specificity that must be provided with your narrative.
Immediate family member means father, mother, husband, brother, sister, grandfather, grandmother, grandson, grand-daughter, father-in-law, and mother-in-law.
To register for a Dun and Bradstreet profile please visit http://fedgov.dnb.com/webform. You should be able to register for this account and receive a DUNS number very quickly through this link. If you register through http://www.dnb.com it will take longer.
You can view the latest SBA 8(a) Regulations or CFR: Title 13:Part 124 by clicking here.
Your primary NAICS (North American Industry Classification System) code is the six digit code that your business earned its largest segment of revenue in, in the most recently completed fiscal year. The primary NAICS code help the SBA determine what industry you are operating in and if you are classified as a small business. Visit the US Census Bureau to determine your primary NAICS code.