The 8(a) Business Development Program is a business assistance program for small disadvantaged businesses. In order to be eligible for the 8a certification the SBA requires that at least 51% of the applicant firm is directly and unconditionally owned by socially and economically disadvantaged individuals.
The SBA defines socially disadvantaged individuals as those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as members of a group. Social disadvantage must stem from circumstances beyond their control. In the absence of evidence to the contrary, individuals who are members of the following designated groups are presumed to be socially disadvantaged:
- Black Americans
- Hispanic Americans
- Native Americans (American Indians, Eskimos, Aleuts, and Native Hawaiians)
- Asian Pacific Americans (persons with origins from Japan, China, the Philippines, Vietnam, Korea, Samoa, Guam, U.S. Trust Territory of the Pacific Islands [Republic of Palau], Commonwealth of the Northern Mariana Islands, Laos, Cambodia [Kampuchea], Taiwan; Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Republic of the Marshall Islands, Federated States of Micronesia, Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru; Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal), and ,members of other groups designated by the SBA.
The SBA defines economically disadvantaged as socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities. An economically disadvantaged individual’s net worth, after excluding the individual’s equity in the firm and the equity in the primary residence, may not exceed $250,000. SBA will also consider the individual’s average two-year income, fair market value of all assets, access to credit and capital, and the financial condition of the applicant firm in evaluating economic disadvantage.
Once you can confirm that the owner have to meet the socially and economically disadvantaged definitions it is important to verify that the business itself is strong enough to be a good candidate for 8(a) certification. The SBA considers the business’ potential for success requirement based on the following:
- Managerial Expertise – The socially/economically disadvantaged owner must show that he or she has the highest level of experience among all owners and employees. It is critical to have the technical and managerial experience needed to show that the socially/economically disadvantaged owner can make decisions without the influence of others.
- Employees/ Licenses – Businesses must be able to document all employee salaries and the socially/economically disadvantaged owner must be the highest paid and hold all required state licenses.
- Firm’s operating history – Businesses must have been operational for at least two full years as evidenced by business income tax returns for each of the two previous tax years, which show operating revenues in the primary industry in which the applicant firm is seeking 8a certification.
- Strong operating capital – Businesses must be able to demonstrate that they have enough cash on hand to successfully pay for bills 2 or 3 months if they had no incoming revenue. The ability of the firm to access credit and capital is critical in determining that a firm is a good fit for 8(a) certification.
- Financial Capacity – Businesses must show that they have operated with a profit for a minimum of 3 years to be considered for 8(a) certification. Businesses with high debt or large accounts receivable are not traditionally a good fit for 8(a) certification.
- Record of Performance – Businesses should have a strong portfolio of candidates/contracts (six or more is recommended) to show that they do not rely too heavily on any one contract.
Prior to applying for the 8(a) Program, each firm is urged to take an on-line training and self-evaluation course, which is accessible via the following link: 8(a) Business Development Suitability Tool. By having a better understanding of the 8a certification, its benefits, and requirements, you should be able to determine if your small business would qualify for this extremely beneficial certification. Please contact BizCentral USA to assist you in preparing the 8(a) certification will prove to be a valuable asset for years to come.