SBA 8(a) BD Program Information
If you are a small business owner interested in learning more about the Small Business Administration’s (SBA’s) 8(a) Business Development (BD) program, read further for information on: the benefits of the 8(a) BD program; the requirements for admission in the 8(a) BD program; and the nuts and bolts of the 8(a) BD application process. This process is tedious and cumbersome, but the right preparation pays off.
Benefits of the 8(a) Business Development program
The SBA’s 8(a) BD program gives participants a competitive advantage in the federal government marketplace. Benefits include, but are not limited to, the following:
- Eligibility to receive sole source contracts up to a ceiling of $4 million for goods and services and $6.5 million for manufacturing [13 CFR 124.506]
- Ability to form joint ventures and teams to bid on contracts. 8(a) BD participants are attractive to prime contractors because of subcontracting credit received in proposals; and attractive to procuring agencies because of 8(a) procurement goals.
- Opportunity to participate in the SBA’s mentor-protégé program. A business will gain valuable technical and management assistance from a successful firm that has graduated the 8(a) program.
Requirements for admission to the 8(a) Business Development program
In order for a business to be admitted to the 8(a) BD program, it must demonstrate that it meets the following requirements:
- A small business (determined by the business’ primary NAICS code)
- Unconditionally owned
- Unconditionally controlled
- By a socially AND economically disadvantaged individual who is of good character and a citizen and resident of the United States
- And which demonstrates the potential for success.
What is “Unconditional Ownership?”
For the SBA to approve a concern’s 8(a) BD application, the concern must show that it is 51% unconditionally and directly owned by the individual upon whom the application is based (the “Individual”). This means that this individual must own 51% of the interest (LLC) or shares (corporation) in the entity, and also be entitled to 51% of the retained earnings of the concern. [13 CFR 124.105].
What is “Unconditional Control?”
The SBA defines “control” as “including both the strategic policy setting exercised by boards of directors, and the day-to-day management and administration of business operations.” The Individual does not need to have the technical expertise or possess a required license to be found in control so long as he can demonstrate that he has ultimate managerial and supervisory control over those who possess the required license or technical expertise. [13 CFR 124.106].
In a nutshell, the checklist to show “control” is as follows:
- The business must be managed on a full-time basis by the Individual, who must possess requisite management capabilities.
- The Individual must hold the highest officer position.
- The Individual must devote full-time to the business during the normal working hours of firms in the same or similar line of business. Any outside employment must be explained.
- The Individual must serve as a management member, with control over all decisions of the limited liability company (ie, own the majority of voting interest). This also means that there can be no “negative control” – other members of the company may manage the concern, but no executive/management decisions made by the members or Board of Directors in the Individual’s absence. (For management action, he must be present to establish a “quorum” – a sufficient number of members/directors for action to be taken).
- In general, the Individual must earn the highest salary.
What is a “Socially Disadvantaged Individual?”
Under the SBA regulations, a socially disadvantaged individual is an individual who has “been subjected to racial or ethnic prejudice or cultural bias within American society because of [his] identities as [a] member of groups and without regard to [his] individual qualities.” The SBA regulations list groups that are presumed socially disadvantaged. For practical purposes, in order to establish social disadvantage, one must show that he is a member of one of these groups. [13 CFR 124.103]. He is then presumed socially disadvantaged.
For an individual who is not a member of a group presumed socially disadvantaged by the SBA, he must prove social disadvantage by the “preponderance of the evidence.” This is the same standard applied in civil court cases, and means “more likely than not.” Evidence of social disadvantage includes at least one objective distinguishing feature that has contributed to social disadvantage. For example, an individual may be a member of a religion that involves conduct that is not understood by general society.
The Individual must also show how this objective distinguishing feature has rendered him disadvantaged. In his social narrative submitted with his application, he must provide evidence of personal experience of substantial and chronic disadvantage in American society; as well as its negative impact in entry to or advancement in the business world, education, employment, and the concern’s business history. To support his application, the Individual may include affidavits from himself and other individuals who can attest to his social disadvantage.
What is an “Economically Disadvantaged Individual?”
Under the SBA regulations, an economically disadvantaged individual is a socially disadvantaged individual “whose 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.” [13 CFR 124.104].
The Individual must submit a narrative statement discussing economic disadvantage and submit his own personal financial statements. The SBA will examine income (average over last three years cannot exceed $250,000); personal net worth (less than $250,000, excluding ownership interest in the concern and equity in primary personal residence); and the fair market value of all assets (cannot exceed $4,000,000). In general, exceeding the set thresholds for one of these factors will generally preclude an Individual from showing he is economically disadvantaged.
What is “Potential for Success?”
To show a potential for success, a business applying to the 8(a) BD program must be in business in its primary industry classification for at least two full years immediately prior to the date of its 8a(BD) application (unless a waiver for the two-year requirement is granted). The SBA will require income tax returns for each of the two previous tax years showing operating revenues in the primary industry in which the application is seeking 8(a) BD certification.
In assessing the potential for success, the SBA will consider a concern’s access to credit and capital; the technical and managerial experience of the concern’s managers, the operating history of the concern; the concern’s record of performance on previous federal and private sector controls in the primary NAICS code; and the concern’s financial capacity [13 CFR 124.107]. The SBA will also look at where the concern makes its revenue – if all revenue is derived from one contract, this may have a negative impact on the application.
These requirements are very nuanced, and it helps to consult a professional to help you navigate through them to anticipate and mitigate issues that may arise in your application. Also, the SBA highly recommends that businesses seeking 8(a) BD certification first take its 8(a) BD suitability tool: http://training.sba.gov:8000/assessment.
Preparing the 8(a) Business Development program application
The SBA recommends filing an electronic application. Paper applications take a considerably longer period of time to process, and it is easier to make mistakes.
The concern must be registered in SAM, and it must also register for an account in the SBA’s General Log-In System. To apply to the 8(a) BD program, the concern will submit an electronic application, and also submit hard copies of the documents, supporting documentation, and signed forms requested by the SBA. (As a note, it will also use the General Log-in System to complete your annual reporting).
The regional Division of Program Certification and Eligibility (DPCE) has 15 days to review the application for completeness. If the application is incomplete, the applicant will have 15 days to provide additional information. If the DPCE determines the application is complete, a final decision regarding 8(a) BD Program eligibility will be made within 90 days after SBA’s determination that the application is complete. In the event a concern is denied admission to the program, appeal procedures are available.
If you would like additional information or assistance with your 8(a) BD Program application, please contact me at: [email protected]. To learn more about my services in preparing 8(a) BD Program applications, click here.
