Eligibility Criteria for SBA 8(a)
Generally, the minimum requirements to apply for admission into the Small Business Administration’s 8(a) Business Development Program are:
- A for-profit business meets the basic requirements for admission to the 8(a) program if it is 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 which demonstrates potential for success.
- Social Disadvantage means an individual who is a member of a presumed group;
- Economic Disadvantage means, in general terms, excluding the primary residence and ownership in the applying firm, a socially disadvantage individuals whose personal net worth does not exceed the current SBA’s standard;
- Three year average of annual gross receipts due not exceed the Small Business Size Standard as defined by SBA regulations 13 CFR 121.40
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Certification for Minority-owned Businesses
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Disadvantaged Business Enterprise Certification by U.S. Department of Transportation through state transportation authorities for minorities or women-owned businesses, or other socially and economically disadvantaged individuals such as persons with disabilities.
8(a) or WOSB
Certification for Minor of Women-owned Businesses
8(a) Business Development Program administered by the Small Business Administration (SBA) for small businesses owned by minorities or women who are socially and economically disadvantaged individuals or as a Women-owned Small Business – WOSB certification.
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The 8(a) Business Development Program was created to help small, disadvantaged businesses compete in the marketplace and provides assistance to firms 51% unconditionally and controlled by socially and economically disadvantaged individuals.(add hyperlink to (13 C.F.R. §124.103 below). The 8(a) program helps an 8(a) Participants gain a foothold in government contracting by receiving:
Access to individual, sole-source contracts of up to $4 million for goods/services and $6.5 million for manufacturing (while an 8(a) an 8(a) Participant a firms cannot exceed $100M in sole source contracts)
Form joint ventures and teams to bid on contracts (also see the Mentor-Protégé Program)
8(a) an 8(a) Participants have access specialized business training, counseling, marketing assistance, and high-level executive development provided by the SBA and our resource partner and may 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.
Participation in the program is divided into two phases over nine years: a four-year developmental stage and a fiveyear transition stage. Participating 8(a) firms are annually reviewed and subject to systematic evaluations; required to maintain a balance between commercial and government business and provide business planning.
Alaska Native, as defined by the Alaska Native Claims Settlement Act (43 U.S.C. 1602), means a citizen of the United States who is a person of one-fourth degree or more Alaskan Indian (including Tsimshian Indians not enrolled in the Metlaktla Indian Community), Eskimo, or Aleut blood, or a combination of those bloodlines. The term includes, in the absence of proof of a minimum blood quantum, any citizen whom a Native village or Native group regards as an Alaska Native if their father or mother is regarded as an Alaska Native.
Bona fide place of business, for purposes of 8(a) construction procurements, means a location where a an 8(a) Participant regularly maintains an office, which employs at least one full-time individual within the appropriate geographical boundary. The term does not include construction trailers or other temporary construction sites.
Day-to-day operations of a firm means the marketing, production, sales, and administrative functions of the firm.
Immediate family member means father, mother, husband, wife, son, daughter, brother, sister, grandfather, grandmother, grandson, granddaughter, father-in-law, and mother-in-law.
NAICS code means North American Industry Classification System code.
Non-disadvantaged individual means any individual who does not claim disadvantaged status, does not qualify as disadvantaged, or upon whose disadvantaged status an applicant or an 8(a) Participant does not rely in qualifying for 8(a) program participation.
8(a) Participant means a small business firm admitted to participate in the 8(a) program.
Primary industry classification means the six digit North American Industry Classification System (NAICS) code designation which best describes the primary business activity of the 8(a) BD applicant or an 8(a) Participant. The NAICS code designations are described in the North American Industry Classification System book published by the U.S. Office of Management and Budget. SBA utilizes §121.107 of this chapter in determining a firm’s primary industry classification. A an 8(a) Participant may change its primary industry classification where it can demonstrate to SBA by clear evidence that the majority of its total revenues during a three-year period have evolved from one NAICS code to another.
Principal place of business means the business location where the individuals who manage the firm’s day-to-day operations spend most working hours and where top management’s business records are kept. If the offices from which management is directed and where the business records are kept are in different locations, SBA will determine the principal place of business for program purposes.
Regularly maintains an office means conducting business activities as an on-going business firm from a fixed location on a daily basis. The best evidence of the regular maintenance of an office is documentation that shows that third parties routinely transact business with a an 8(a) Participant at a location within a particular geographical area. Such evidence includes lease agreements, payroll records, advertisements, bills, correspondence, and evidence that the an 8(a) Participant has complied with all local requirements firming registering, licensing, or filing with the State or County where the place of business is located. Although a firm would generally be required to have a license to do business in a particular location in order to “regularly maintain an office” there, the firm would not be required to have an additional construction license or other specific type of license in order to regularly maintain an office.
Same or similar line of business means business activities within the same four-digit “Industry Group” of the NAICS Manual as the primary industry classification of the applicant or an 8(a) Participant. The phrase “same business area” is synonymous with this definition.
Self-marketing of a requirement occurs when a an 8(a) Participant identifies a requirement that has not been committed to the 8(a) program and, through its marketing efforts, causes the procuring activity to offer that specific requirement to the 8(a) program on the an 8(a) Participant’s behalf. A firm which identifies and markets a requirement which is subsequently offered to the 8(a) program as an open requirement or on behalf of another an 8(a) Participant has not “self-marketed” the requirement within the meaning of this part.
Unconditional ownership means ownership that is not subject to conditions precedent, conditions subsequent, executory agreements, voting trusts, restrictions on or assignments of voting rights, or other arrangements causing or potentially causing ownership benefits to go to another (other than after death or incapacity). The pledge or encumbrance of stock or other ownership interest as collateral, including seller-financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the owner retains control absent violations of the terms.
Generally, a firm meets the basic requirements for admission to the 8(a) program if it is 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 which demonstrates potential for success.
The three-year average of the firm’s gross receipts does not exceed the SBA’s Small Business Size Standard for the NAICS code associated with the entity’s primary business activity.
If SBA officials determine that a firm may not qualify as small, they may deny an application for 8(a) program admission or may request a formal size determination under part 121 of this title.
(c) A firm whose application is denied due to size by 8(a) program officials may request a formal size determination under part 121 of this title. A favorable determination will enable the firm to submit a new 8(a) application without waiting one year.
General. 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.
Members of designated groups. (1) There is a rebuttable presumption that the following individuals are socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands, Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao, 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 from time to time by SBA according to procedures set forth at paragraph (d) of this section. Being born in a country does not, by itself, suffice to make the birth country an individual’s country of origin for purposes of being included within a designated group.
An individual must demonstrate that he or she has held himself or herself out, and is currently identified by others, as a member of a designated group if SBA requires it. The presumption of social disadvantage may be overcome with credible evidence to the contrary. Individuals possessing or knowing of such evidence should submit the information in writing to the Associate Administrator for Business Development (SBA) for consideration.
Individuals not members of designated groups. (1) An individual who is not a member of one of the groups presumed to be socially disadvantaged in paragraph (b)(1) of this section must establish individual social disadvantage by a preponderance of the evidence. Such individual should present corroborating evidence to support his or her claim(s) of social disadvantage where readily available.
Evidence of individual social disadvantage must include the following elements:
At least one objective distinguishing feature that has contributed to social disadvantage, 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) and must be chronic, substantial, not fleeting or insignificant.
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 relating to education, employment and business history (including experiences relating to both the applicant firm and any other previous firm owned and/or controlled by the individual), where applicable.
Education. SBA considers such 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.
Employment. SBA considers such factors as unequal treatment in hiring, promotions and other aspects of professional advancement, pay and fringe benefits, and other terms and 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.
Business history. SBA considers such factors as unequal access to credit or capital, acquisition of credit or capital under commercially unfavorable circumstances, unequal treatment in opportunities for government contracts or other work, unequal treatment by potential customers and business associates, and exclusion from business or professional organizations.
An individual claiming social disadvantage must present facts and evidence that by themselves establish that the individual has suffered social disadvantage that has negatively impacted his or her entry into or advancement in the business world.
For each instance of alleged discriminatory conduct must be accompanied by a negative impact on the individual’s entry into or advancement in the business world in order for it to constitute an instance of social disadvantage.
The SBA may disregard a claim of social disadvantage where a legitimate alternative ground for an adverse employment action or other perceived adverse action exists and the individual has not presented evidence that would render his/her claim any more likely than the alternative ground.
The SBA may disregard a claim of social disadvantage where an individual presents evidence of discriminatory conduct, but fails to connect the discriminatory conduct to consequences that negatively impact his or her entry into or advancement in the business world.
Example to paragraph (c)(3)(iii). A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She provides instances where one or more male business clients utter derogatory statements about her because she is a woman. After each instance, however, she acknowledges that the clients gave her contracts or otherwise continued to do business with her. Despite suffering discriminatory conduct, this individual has not established social disadvantage because the discriminatory conduct did not have an adverse effect on her business.
SBA may request an applicant to provide additional facts to support his or her claim of social disadvantage to substantiate that a negative outcome was based on discriminatory conduct instead of one or more legitimate nondiscriminatory reasons. SBA will discount or disbelieve statements made by an individual seeking to establish his or her individual social disadvantage where such statements are inconsistent with other evidence contained in the record.
In determining whether an individual claiming social disadvantage meets the requirements set forth in this paragraph (c), SBA will determine whether: Each specific claim establishes an incident of bias or discriminatory conduct; Each incident of bias or discriminatory conduct negatively impacted the individual’s entry into or advancement in the business world; and
In the totality, the incidents of bias or discriminatory conduct that negatively impacted the individual’s entry into or advancement in the business world establish chronic and substantial social disadvantage.
Socially disadvantaged group inclusion—(1) General. Representatives of an identifiable group whose members believe that the group has suffered chronic racial or ethnic prejudice or cultural bias may petition SBA to be included as a presumptively socially disadvantaged group under paragraph (b)(1) of this section. Upon presentation of substantial evidence that members of the group have been subjected to racial or ethnic prejudice or cultural bias because of their identity as group members and without regard to their individual qualities, SBA will publish a notice in the Federal Register that it has received and is considering such a request, and that it will consider public comments.
Standards to be applied. In determining whether a group has made an adequate showing that it has suffered chronic racial or ethnic prejudice or cultural bias for the purposes of this section, SBA must determine that the group has suffered prejudice, bias, or discriminatory practices and those conditions have resulted in economic deprivation for the group of the type which Congress has found exists for the groups named in the Small Business Act; and those conditions have produced impediments in the business world for members of the group over which they have no control and which are not common to small business owners generally.
Procedure. The notice published under paragraph (d)(1) of this section will authorize a specified period for the receipt of public comments supporting or opposing the petition for socially disadvantaged group status. If appropriate, SBA may hold hearings. SBA may also conduct its own research relative to the group’s petition.
Decision. In making a final decision that a group should be considered presumptively disadvantaged, SBA must find that a preponderance of the evidence demonstrates that the group has met the standards set forth in paragraph (d)(2) of this section based on SBA’s consideration of the group petition, the comments from the public, and any independent research it performs. SBA will advise the petitioners of its final decision in writing, and publish its conclusion as a notice in the Federal Register. If appropriate, SBA will amend paragraph (b)(1) of this section to include a new group.
(a) General. Economically disadvantaged individuals are socially disadvantaged individuals 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.
(b) Submission of narrative and financial information. (1) Each individual claiming economic disadvantage must submit personal financial information.
(2) When married, an individual claiming economic disadvantage must submit separate financial information for his or her spouse, unless the individual and the spouse are legally separated. SBA will consider a spouse’s financial situation in determining an individual’s access to credit and capital where the spouse has a role in the business (e.g., an officer, employee or director) or has lent money to, provided credit support to, or guaranteed a loan of the business. SBA does not take into consideration community property laws when determining economic disadvantage.
(c) Factors to be considered. In considering diminished capital and credit opportunities, SBA will examine factors relating to the personal financial condition of any individual claiming disadvantaged status, including income for the past three years (including bonuses and the value of company stock received in lieu of cash), personal net worth, and the fair market value of all assets, whether encumbered or not. An individual who exceeds any one of the thresholds set forth in this paragraph for personal income, net worth or total assets will generally be deemed to have access to credit and capital and not economically disadvantaged.
(1) Transfers within two years. (i) Except as set forth in paragraph (c)(1)(ii) of this section, SBA will attribute to an individual claiming disadvantaged status any assets which that individual has transferred to an immediate family member, or to a trust a beneficiary of which is an immediate family member, for less than fair market value, within two years prior to a firm’s application for participation in the 8(a) program or within two years of a an 8(a) Participant’s annual program review, unless the individual claiming disadvantaged status can demonstrate that the transfer is to or on behalf of an immediate family member for that individual’s education, medical expenses, or some other form of essential support.
(ii) SBA will not attribute to an individual claiming disadvantaged status any assets transferred by that individual to an immediate family member that are consistent with the customary recognition of special occasions, such as birthdays, graduations, anniversaries, and retirements.
(iii) In determining an individual’s access to capital and credit, SBA may consider any assets that the individual transferred within such two-year period described by paragraph (c)(1)(i) of this section that SBA does not consider in evaluating the individual’s assets and net worth (e.g., transfers to charities).
(2) Net worth. For initial 8(a) BD eligibility, the net worth of an individual claiming disadvantage must be less than $250,000. For continued 8(a) BD eligibility after admission to the program, net worth must be less than $750,000. In determining such net worth, SBA will exclude the ownership interest in the applicant or an 8(a) Participant and the equity in the primary personal residence (except any portion of such equity, which is attributable to excessive withdrawals from the applicant or an 8(a) Participant). Exclusions for net worth purposes are not exclusions for asset valuation or access to capital and credit purposes nor does a contingent liability reduce an individual’s net worth.
Funds invested in an Individual Retirement Account (IRA) or other official retirement account that are unavailable to an individual until retirement age without a significant penalty will not be considered in determining an individual’s net worth. To assess whether funds invested in a retirement account may be excluded from an individual’s net worth, the individual must provide information about the terms and restrictions of the account to SBA and certify that the retirement account is legitimate.
Income received from an applicant or an 8(a) Participant that is an S corporation, limited liability company (LLC) or partnership will be excluded from an individual’s net worth where the applicant or an 8(a) Participant provides documentary evidence demonstrating that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses from the S corporation, LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be used to reduce an individual’s net worth.
The personal net worth of an individual claiming to be an Alaska Native will include assets and income from sources other than an Alaska Native Corporation and exclude any of the following which the individual receives from any Alaska Native Corporation: cash (including cash dividends on stock received from an ANC) to the extent that it does not, in the aggregate, exceed $2,000 per individual per annum; stock (including stock issued or distributed by an ANC as a dividend or distribution on stock); a partnership interest; land or an interest in land (including land or an interest in land received from an ANC as a dividend or distribution on stock); and an interest in a settlement trust.
Personal income for the past three years. (i) If an individual’s adjusted gross income averaged over the three years preceding submission of the 8(a) application exceeds $250,000, SBA will presume that such individual is not economically disadvantaged. For continued 8(a) BD eligibility, SBA will presume that an individual is not economically disadvantaged if his or her adjusted gross income averaged over the three preceding years exceeds $350,000. The presumption may be rebutted by a showing that this income level was unusual and not likely to occur in the future, that losses commensurate with and directly related to the earnings were suffered, or by evidence that the income is not indicative of lack of economic disadvantage.
Income received from an applicant or an 8(a) Participant that is an S corporation, LLC or partnership will be excluded from an individual’s income where the applicant or an 8(a) Participant provides documentary evidence demonstrating that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses from the S corporation, LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be used to reduce an individual’s personal income.
Fair market value of all assets. An individual will generally not be considered economically disadvantaged if the fair market value of all his or her assets (including his or her primary residence and the value of the applicant/an 8(a) Participant firm) exceeds $4 million for an applicant firm and $6 million for continued 8(a) BD eligibility. The only assets excluded from this determination are funds excluded under paragraph (c)(2)(ii) of this section as being invested in a qualified IRA account.
An applicant or an 8(a) 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 United States, except for firms owned by Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations (CDCs). See §124.3 for definition of unconditional ownership; and §§124.109, 124.110, and 124.111, respectively, for special ownership requirements for firms owned by Indian tribes, ANCs, Native Hawaiian Organizations, and CDCs.
(a) Ownership must be direct. Ownership by one or more disadvantaged individuals must be direct ownership. An applicant or an 8(a) Participant owned principally by another business entity or by a trust (including employee stock ownership trusts) that is in turn owned and controlled by one or more disadvantaged individuals does not meet this requirement. However, ownership by a trust, such as a living trust, may be treated as the functional equivalent of ownership by a disadvantaged individual where the trust is revocable, and the disadvantaged individual is the grantor, a trustee, and the sole current beneficiary of the trust.
Ownership of a partnership. In the case of a firm which is a partnership, at least 51 percent of every class of partnership interest must be unconditionally owned by one or more individuals determined by SBA to be socially and economically disadvantaged. The ownership must be reflected in the firm’s partnership agreement.
Ownership of a limited liability company. In the case of a firm which is a limited liability company, at least 51 percent of each class of member interest must be unconditionally owned by one or more individuals determined by SBA to be socially and economically disadvantaged.
Ownership of a corporation. In the case of a firm which is a corporation, at least 51 percent of each class of voting stock outstanding and 51 percent of the aggregate of all stock outstanding must be unconditionally owned by one or more individuals determined by SBA to be socially and economically disadvantaged.
Stock options’ effect on ownership. In determining unconditional ownership, SBA will disregard any unexercised stock options or similar agreements held by disadvantaged individuals. However, any unexercised stock options or similar agreements (including rights to convert non-voting stock or debentures into voting stock) held by nondisadvantaged individuals will be treated as exercised, except for any ownership interests which are held by investment companies licensed under the Small Business Investment Act of 1958.
Dividends and distributions. One or more disadvantaged individuals must be entitled to receive:
- At least 51 percent of the annual distribution of dividends paid on the stock of a corporate applicant firm;
- 100 percent of the value of each share of stock owned by them in the event that the stock is sold; and
- At least 51 percent of the retained earnings of the firm and 100 percent of the unencumbered value of each share of stock owned in the event of dissolution of the corporation.
Ownership of another 8(a) Participant in the same or similar line of business. An individual may not use his or her disadvantaged status to qualify a firm if that individual has an immediate family member who is using or has used his or her disadvantaged status to qualify another firm for the 8(a) program. The SBA may waive this prohibition if the two firms have no connections, either in the form of ownership, control or contractual relationships, and provided the individual seeking to qualify the second firm has management and technical experience in the industry.
Where the firm seeking a waiver is in the same or similar line of business as the current or former 8(a) firm, there is a presumption against granting the waiver. The applicant must provide clear and compelling evidence that no connection exists between the two firms.
If the SBA grants a waiver under this section, SBA will, as part of its annual review, assess whether the firm continues to operate independently of the other current or former 8(a) firm of an immediate family member. SBA may initiate proceedings to terminate a firm for which a waiver was granted from further participation in the 8(a) program if it is apparent that there are connections between the two firms that were not disclosed to the SBA when the waiver was granted or that came into existence after the waiver was granted. SBA may also initiate termination proceedings if the firm begins to operate in the same or similar line of business as the current or former 8(a) firm of the immediate family member and the firm did not operate in the same or similar line of business at the time the waiver was granted.
Ownership restrictions for non-disadvantaged individuals and firms. A non-disadvantaged individual (in the aggregate with all immediate family members) or a non-an 8(a) Participant firm that is a general partner or stockholder with at least a 10 percent ownership interest in one an 8(a) Participant may not own more than a 10 percent interest in another an 8(a) Participant that is in the developmental stage or more than a 20 percent interest in another an 8(a) Participant in the transitional stage of the program. This restriction does not apply to financial institutions licensed or chartered by Federal, state or local government, including investment companies, which are licensed under the Small Business Investment Act of 1958.
A non-an 8(a) Participant firm in the same or similar line of business or a principal of such firm may not own more than a 10 percent interest in a an 8(a) Participant that is in the developmental stage or more than a 20 percent interest in a an 8(a) Participant in the transitional stage of the program, except that a former an 8(a) Participant in the same or similar line of business or a principal of such a former an 8(a) Participant (except those that have been terminated from 8(a) program participation pursuant to §§124.303 and 124.304) may have an equity ownership interest of up to 20 percent in a current an 8(a) Participant in the developmental stage of the program or up to 30 percent in a transitional stage an 8(a) Participant.
Change of ownership. A an 8(a) Participant may change its ownership or business structure so long as one or more disadvantaged individuals own and control it after the change and SBA approves the transaction in writing prior to the change. The decision to approve or deny a an 8(a) Participant’s request for a change in ownership or business structure will be made and communicated to the firm by the SBA. The decision of the SBA is the final decision of the Agency. The SBA will issue a decision within 60 days from receipt of a request containing all necessary documentation, or as soon thereafter as possible. If 60 days lapse without a decision from SBA, the 8(a) Participant cannot presume that it can complete the change without written approval from SBA. A decision to deny a request for change of ownership or business structure may be grounds for program termination where the change is made nevertheless.
Any an 8(a) Participant that was awarded one or more 8(a) contracts may substitute one disadvantaged individual for another disadvantaged individual without requiring the termination of those contracts or a request for waiver under §124.515, as long as it receives SBA’s approval prior to the change.
Where the previous owner held less than a 10 percent interest in the firm, or the transfer results from the death or incapacity due to a serious, long-term illness or injury of a disadvantaged principal, prior approval is not required, but the firm must notify SBA within 60 days.
Continued participation of the an 8(a) Participant with new ownership and the award of any new 8(a) contracts requires SBA’s determination that all eligibility requirements are met by the firm and the new owners.
Where an 8(a) an 8(a) Participant requests a change of ownership or business structure, and proceeds with the change prior to receiving SBA approval (or where a change of ownership results from the death or incapacity of a disadvantaged individual for which a request prior to the change in ownership could not occur), SBA will suspend the an 8(a) Participant from program benefits pending resolution of the request. If the change is approved, the length of the suspension will be restored to the 8(a) Participant’s program term in the case of death or incapacity, or if the firm requested prior approval and waited 60 days for SBA approval. A change in ownership does not provide the new owner(s) with a new 8(a) program term. For example, if a firm has been in the 8(a) program for five years when a change in ownership occurs, the new owner will have four years remaining until program graduation.
Public offering. A an 8(a) Participant’s request for SBA’s approval for the issuance of a public offering will be treated as a request for a change of ownership. Such request will cause SBA to examine the firm’s continued need for access to the business development resources of the 8(a) program.
Community property laws given effect. In determining ownership interests when an owner resides in any of the community property states or territories of the United States (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and Wisconsin), SBA considers applicable state community property laws. If only one spouse claims disadvantaged status, that spouse’s ownership interest will be considered unconditionally held only to the extent it is vested by the community property laws. A transfer or relinquishment of interest by the non-disadvantaged spouse may be necessary in some cases to establish eligibility.
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 an 8(a) Participant’s management and daily business operations must be conducted by one or more disadvantaged individuals. Management experience need not be related to the same or similar industry as the primary industry classification of the applicant or 8(a) Participant. Disadvantaged individuals managing the firm must have managerial experience of the extent and complexity needed to run the firm. A disadvantaged individual need not have the technical expertise or possess a required license to be found to control an applicant or an 8(a) Participant if he or she can demonstrate that he or she has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise. However, where a critical license is held by a non-disadvantaged individual having an equity interest in the applicant or an 8(a) Participant firm, the non-disadvantaged individual may be found to control the firm.
An applicant or 8(a) 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 (usually President or Chief Executive Officer) in the applicant or 8(a) Participant and be physically located in the United States.
One or more disadvantaged individuals who manage the applicant or an 8(a) Participant must devote full-time to the business during the normal working hours of firms in the same or similar line of business. Work in a whollyowned subsidiary of the applicant or 8(a) Participant may be considered to meet the requirement of full-time devotion. This applies only to a subsidiary owned by the 8(a) firm, and not to firms in which the disadvantaged individual has an ownership interest.
Any disadvantaged manager who wishes to engage in outside employment must notify SBA immediately and obtain the prior written approval of SBA. SBA will deny a request for outside employment, which could conflict with the management of the firm or could hinder it in achieving the objectives of its business development plan.
Except as provided in this section, a disadvantaged owner’s unexercised right to cause a change in the control or management of the applicant firm does not in itself constitute disadvantaged control and management, regardless of how quickly or easily the right could be exercised.
In the case of a partnership, one or more disadvantaged individuals must serve as general partners, with control over all partnership decisions. A partnership in which no disadvantaged individual is a general partner will be ineligible for participation.
In the case of a limited liability company, one or more disadvantaged individuals must serve as management members, with control over all decisions of the limited liability company.
One or more disadvantaged individuals must control the Board of Directors of a corporate applicant or 8(a) Participant.
SBA will deem disadvantaged individuals to control the Board of Directors where:
A single disadvantaged individual owns 100% of all voting stock of an applicant or an 8(a) Participant firm;
A single disadvantaged individual owns at least 51% of all voting stock of an applicant or an 8(a) Participant firm, the individual is on the Board of Directors and no super majority voting requirements exist for shareholders to approve corporation actions. Where super majority voting requirements are provided for in the firm’s articles of incorporation, its by-laws, or by state law, the disadvantaged individual must own at least the percent of the voting stock needed to overcome any such super majority voting requirements; or
More than one disadvantaged shareholder seeks to qualify the firm (i.e., no one individual owns 51%), each such individual is on the Board of Directors, together they own at least 51% of all voting stock of the firm, no super majority voting requirements exist, and the disadvantaged shareholders can demonstrate that they have made enforceable arrangements to permit one of them to vote the stock of all as a block without a shareholder meeting. Where the firm has super majority voting requirements, the disadvantaged shareholders must own at least that percentage of voting stock needed to overcome any such super majority ownership requirements.
Where an applicant or an 8(a) Participant does not meet the requirements set forth in paragraph (d)(1) of this section, the disadvantaged individual(s) upon whom eligibility is based must control the Board of Directors through actual numbers of voting directors or, where permitted by state law, through weighted voting (e.g., in a firm having a two-person Board of Directors where one individual on the Board is disadvantaged and one is not, the disadvantaged vote must be weighted—worth more than one vote—in order for the firm to be eligible for 8(a) participation). Where a firm seeks to comply with this paragraph:
Provisions for the establishment of a quorum cannot permit non-disadvantaged Directors to control the Board of Directors, directly or indirectly;
Any Executive Committee of Directors must be controlled by disadvantaged directors unless the Executive Committee can only make recommendations to and cannot independently exercise the authority of the Board of Directors.
An applicant must inform SBA of any super majority voting requirements provided for in its articles of incorporation, its by-laws, by state law, or otherwise. Similarly, after being admitted to the program, a an 8(a) Participant must inform SBA of changes regarding super majority voting requirements.
Non-voting, advisory, or honorary Directors may be appointed without affecting disadvantaged individuals’ control of the Board of Directors.
Arrangements regarding the structure and voting rights of the Board of Directors must comply with applicable state law.
Non-disadvantaged individuals may be involved in the management of an applicant, and may be stockholders, partners, limited liability members, officers, and/or directors of the applicant. However, no non-disadvantaged individual or immediate family member may exercise actual control or have the power to control the applicant firm;
Be a former employer or a principal of a former employer of any disadvantaged owner of the applicant or an 8(a) Participant, unless it is determined by the SBA that the relationship between the former employer or principal and the disadvantaged individual or applicant firm does not give the former employer actual control or the potential to control the applicant or an 8(a) Participant and such relationship is in the best interests of the 8(a) BD firm; or
Receive compensation from the applicant or 8(a) Participant in any form as directors, officers or employees, including dividends exceeding the compensation to be received by the highest officer (usually CEO or President). The highest ranking officer may elect to take a lower salary, only upon demonstrating that it helps the applicant. In the case of an 8(a) Participant, the an 8(a) Participant must also obtain the prior written consent of the SBA or designee before changing the compensation paid to the highest ranking officer to be below that paid to a nondisadvantaged individual.
Non-disadvantaged individuals who transfer majority stock ownership or control of the firm to an immediate family member within two years prior to the application and remain involved in the firm as a stockholder, officer, director, or key employee of the firm are presumed to control the firm. The presumption may be rebutted by showing that the transferee has independent management experience necessary to control the operation of the firm.
Non-disadvantaged individuals or entities may be found to control or have the power to control in any of the following circumstances, which are illustrative only and not all inclusive:
In circumstances where an applicant or an 8(a) Participant seeks to establish disadvantaged control of the Board of Directors of this section, non-disadvantaged individuals control the Board of Directors of the applicant or an 8(a) Participant, either directly through majority voting membership, or indirectly, where the by-laws allow nondisadvantaged individuals effectively to prevent a quorum or block actions proposed by the disadvantaged individuals.
A non-disadvantaged individual or entity, having an equity interest in the applicant or an 8(a) Participant, provides critical financial or bonding support or a critical license to the applicant or an 8(a) Participant which directly or indirectly allows the non-disadvantaged individual significantly to influence business decisions of the an 8(a) Participant.
A non-disadvantaged individual or entity controls the applicant or 8(a) Participant or an individual disadvantaged owner through loan arrangements. Providing a loan guaranty on commercially reasonable terms does not, by itself, give a non-disadvantaged individual or entity the power to control a firm.
Business relationships exist with non-disadvantaged individuals or entities, which cause such dependence that the applicant or 8(a) Participant cannot exercise independent business judgment without great economic risk.
Notwithstanding the provisions of this section requiring a disadvantaged owner to control the daily business operations and long-term strategic planning of an 8(a) BD an 8(a) Participant, where a disadvantaged individual upon whom eligibility is based is a reserve component member in the United States military who has been called to active duty, the an 8(a) Participant may elect to designate one or more individuals to control the an 8(a) Participant on behalf of the disadvantaged individual during the active duty call-up period. If such an election is made, the an 8(a) Participant will continue to be treated as an eligible 8(a) an 8(a) Participant and no additional time will be added to its program term. Alternatively, the an 8(a) Participant may elect to suspend its 8(a) BD participation during the active duty call-up period pursuant to §§124.305(h)(1)(ii) and 124.305(h)(4).
[63 FR 35739, June 30, 1998, as amended at 74 FR 45753, Sept. 4, 2009; 76 FR 8255, Feb. 11, 2011; 81 FR 48580, July 25, 2016]
The applicant firm 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) BD application, unless a waiver for this requirement is granted pursuant to paragraph (b) of this section. Income tax returns for each of the two previous tax years must show operating revenues in the primary industry in which the applicant is seeking 8(a) BD certification.
The SBA may waive the two years in business requirement if each of the following five conditions are met: the individual or individuals upon whom eligibility is based have substantial business management experience; the applicant has demonstrated technical experience to carry out its business plan with a substantial likelihood for success if admitted to the 8(a) program; the applicant has adequate capital to sustain its operations and carry out its business plan as a an 8(a) Participant; the applicant has a record of successful performance on contracts from governmental or nongovernmental sources in its primary industry category; and the applicant has, or can demonstrate its ability to timely obtain, the personnel, facilities, equipment, and any other requirements needed to perform contracts as a an 8(a) Participant.
The firm seeking a waiver under paragraph (b) must provide information on governmental and nongovernmental contracts in progress and completed (including letters of reference) in order to establish successful contract performance, and must demonstrate how it otherwise meets the five conditions for waiver. SBA considers an applicant’s performance on both government and private sector contracts in determining whether the firm has an overall successful performance record. If, however, the applicant has performed only government contracts or only private sector contracts, SBA will review its performance on those contracts alone to determine whether the applicant possesses a record of successful performance.
In assessing potential for success, SBA considers the firm’s access to credit and capital, including, but not limited to, access to long-term financing, access to working capital financing, equipment trade credit, access to raw materials and supplier trade credit, and bonding capability. SBA will also consider the technical and managerial experience of the applicant firm’s managers, the operating history of the firm, the firm’s record of performance on previous Federal and private sector contracts in the primary industry in which the firm is seeking 8(a) BD certification, and its financial capacity. The applicant firm as a whole must demonstrate both technical knowledge in its primary industry category and management experience sufficient to run its day-to-day operations.
Individuals employed by 8(a) Participant must hold all requisite licenses if the firm is engaged in an industry requiring professional licensing (e.g., public accountancy, law, professional engineering).
An applicant will not be denied admission into the 8(a) program due solely to a determination that potential 8(a) contract opportunities are unavailable to assist in the development of the firm unless the Government has not previously procured and is unlikely to procure the types of products or services offered by the firm; or the purchase of such products or services by the Federal Government will not be in quantities sufficient to support the developmental needs of the applicant and other an 8(a) Participants providing the same or similar items or services.
Good character. The applicant or an 8(a) Participant and all its principals must have good character. If during the processing of an application, SBA receives adverse information from the applicant or a credible source regarding possible criminal conduct by the applicant or any of its principals, SBA may suspend further processing of the application and refer it to SBA’s Office of Inspector General (OIG) for review. If the SBA suspends the application, but does not hear back from OIG within 45 days, SBA may proceed with application processing. The SBA will consider any findings of the OIG when evaluating the application. Violations of any of SBA’s regulations may result in denial of participation in the 8(a) program. The SBA will consider the nature and severity of the violation in making an eligibility determination. Debarred or suspended firms or firms owned by debarred or suspended persons are ineligible for admission to the 8(a) program.
An applicant is ineligible for admission to the 8(a) program if the applicant firm or a proprietor, partner, limited liability member, director, officer, or holder of at least 20 percent of its stock, or another person (including key employees) with significant authority over the firm:
Lacks business integrity as demonstrated by information related to an indictment or guilty plea, conviction, civil judgment, or settlement; or Is currently incarcerated, or on parole or probation pursuant to a pre-trial diversion or following conviction for a felony or any crime involving business integrity. If, during the processing of an application, SBA determines that an applicant has knowingly submitted false information, regardless of whether correct information would cause SBA to deny the application, and regardless of whether correct information was given to SBA in accompanying documents, SBA will deny the application. If, after admission to the program, SBA discovers that false information has been knowingly submitted by a firm, SBA will initiate termination proceedings and suspend the firm under §§124.304 and 124.305. Whenever SBA determines that the applicant submitted false information, the matter will be referred to SBA’s Office of Inspector General for review.
One-time eligibility. Once a firm or disadvantaged individual upon whom eligibility was based has participated in the 8(a) program, neither the firm nor that individual will be eligible again. An individual who claims disadvantage and completes the appropriate SBA forms to qualify an applicant has participated in the 8(a) program if SBA approves the application. Use of eligibility will take effect on the date of the firm’s approval for admission into the program. An individual who uses his or her one-time eligibility to qualify a firm for the 8(a) program will be considered a nondisadvantaged individual for ownership or control purposes of another applicant or an 8(a) Participant. The criteria restricting participation by non-disadvantaged individuals will apply to such an individual. See §§124.105 and 124.106. When at least 50% of the assets of a firm are the same as those of a former an 8(a) Participant, the firm will not be eligible for entry into the program.
an 8(a) Participants which change their form of business organization and transfer their assets and liabilities to the new organization may do so without affecting the eligibility of the new organization provided the previous business is dissolved and all other eligibility criteria are met. In such a case, the new organization may complete the remaining program term of the previous organization. A request for a change in business form will be treated as a change of ownership under §124.105(i).
Wholesalers. An applicant firm seeking admission to the 8(a) program as a wholesaler need not demonstrate that it is capable of meeting the requirements of the non-manufacturer rule for its primary industry classification.
Brokers. Brokers are ineligible to participate in the 8(a) program. A broker is a firm that adds no material value to an item being supplied to a procuring activity or which does not take ownership or possession of or handle the item being procured with its own equipment or facilities.
Federal financial obligations. Neither a firm nor any of its principals that fails to pay significant financial obligations owed to the Federal Government, including unresolved tax liens and defaults on federal loans or other federally assisted financing, is eligible for admission to or participation in the 8(a) program.
Each 8(a) BD applicant firm must submit those forms and attachments required by SBA when applying for admission to the 8(a) program. These forms and attachments may include, but not be limited to, financial statements, copies of signed Federal personal and business tax returns, individual and business bank statements, personal history statements, and any additional documents SBA deems necessary to determine eligibility. In all cases, the applicant must provide a signature from each individual claiming social and economic disadvantage status. The electronic signing protocol will ensure the Agency is able to identify the individual making the representation. The individual(s) upon whom eligibility is based take responsibility for the accuracy of all information submitted on behalf of the applicant.
The SBA is authorized to approve or decline applications for admission to the 8(a) program. The DPCE will receive, review and evaluate all 8(a) BD applications. SBA will advise each program applicant within 15 days after the receipt of an application whether the application is complete and suitable for evaluation and, if not, what additional information or clarification is required to complete the application. SBA will process an application for 8(a) program participation within 90 days of receipt of a complete application package by the DPCE. Incomplete packages will not be processed.
SBA, in its sole discretion, may request clarification of information contained in the application at any time in the application process. SBA will take into account any clarifications made by an applicant in response to a request for such by SBA.
The burden of proof to demonstrate eligibility is on the applicant firm. If a firm does not provide requested information within the allotted time provided by SBA, or if it submits incomplete information, SBA may presume that disclosure of the missing information would adversely affect the firm or would demonstrate lack of eligibility in the area to which the information relates.
An applicant must be eligible as of the date the SBA issues a decision. The decision will be based on the facts set forth in the application, any information received in response to SBA’s request for clarification made pursuant to paragraph (b) of this section, and any changed circumstances since the date of application.
If the applicants has a change in circumstances after applying, which adversely affect eligibility, may constitute grounds for decline. The applicant must inform SBA of any changed circumstances that could adversely affect its eligibility for the program (particularly economic disadvantage and ownership and control) during its application review. Failure to inform SBA of any such changed circumstances constitutes good cause for which SBA may terminate the 8(a) Participant if non-compliance is discovered after admittance.
The decision of the SBA to approve or deny an application will be in writing. A decision to deny admission will state the specific reasons for denial, and will inform the applicant of any appeal rights. If the SBA approves the application, the date of the approval letter is the date of program certification for purposes of determining the firm’s program term.
Additional information about the SBA 8(a) Business Development Program is also available here