The 8(a) Program is a Small Business Administration (SBA) program intended to provide assistance to economically and/or socially disadvantaged business owners.
The initiative, which originated out of Section 8(a) of the Small Business Act—hence its name—provides participants with access to a variety of business development services, including the opportunity to receive federal contracts on a sole-source or limited competition basis.
The program has been an important one for thousands of minority entrepreneurs over the past few years.
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8(A) Program Eligibility Requirements
Entrepreneurs seeking to gain entrance into the SBA’s 8(a) program must meet a number of criteria in such areas as ownership, management, and likelihood of success.
- An applicant must qualify as a small business enterprise as defined by the Small Business Administration’s rules and regulations.
- An applicant firm must be majority-owned (51 percent or more) by an individual or individual(s) who is an American citizen. If the business is a corporation, “at least 51 percent of each class of voting stock and 51 percent of the aggregate of all outstanding shares of stock must be unconditionally owned by an individual(s) determined by SBA to be socially and economically disadvantaged,” stated the Small Business Administration.
- Majority owners of the applicant firm have to meet the SBA definition of a socially and economically disadvantaged group. Socially disadvantaged individuals are defined by the SBA as those who have been subjected to racial or ethnic prejudice or cultural bias because of their identification as members of groups without regard to their individual qualities. Economically disadvantaged individuals, meanwhile, are defined by the SBA as socially disadvantaged people whose ability to compete in the free enterprise system has been diminished as a result of lesser capital and credit opportunities. Individuals from a broad array of social/ethnic groups have been found eligible for the 8(a) program under the above criteria, including black Americans, Hispanic Americans, Native Americans, Pacific Americans, and members of other ethnic groups. Individuals who are not members of recognized socially disadvantaged groups may also apply, but the SBA notes that such applicants “must establish social disadvantage on the basis of clear and convincing evidence.”
- Stock status is also considered. For example, a business may not claim to be unconditionally owned by socially/economically disadvantaged individuals if they make that claim on the basis of unexercised stock options. Similarly, the SBA considers options to purchase stock held by non-disadvantaged entities when determining ownership.
- One 8(a) firm may not hold more than a 10 percent equity ownership interest in any other 8(a) firm.
Moreover, no individual owner of an 8(a) firm, even if he or she qualifies as disadvantaged, may hold an equity ownership interest of more than 10 percent in another firm involved in the 8(a) program.
- According to the SBA, “the management and daily business operations of a firm must be controlled by an owner(s) of the firm who has (have) been determined to be socially and economically disadvantaged. For a disadvantaged individual to control the firm, that individual must have managerial or technical experience and competency directly related to the primary industry in which the firm is seeking 8(a) certification… . for those industries requiring professional licenses, SBA determines that the firm or individuals employed by the firm hold(s) the requisite license(s).”
- At least one full-time manager who qualifies under SBA definitions as a disadvantaged person must hold the position of president or CEO in the company.
- The individual or individuals claiming disadvantage must demonstrate that they personally suffered disadvantage, not just that the group of which they are a member has historically been considered to be disadvantaged. Moreover, the SBA stipulates that social disadvantage must be 1) rooted in treatment received in American society, not other countries; 2) chronic and substantial; 3) and hindered their entrance or progress in the world of business.
Applicants can point to several kinds of experiences to demonstrate the above, including denial of equal access to institutions of higher education; exclusion from social and professional associations; denial of educational honors; social pressures that discouraged the individual from pursuing education; and discrimination in efforts to secure employment or secure professional advancement.
- Individuals claiming economic disadvantage can not have a personal net worth in excess of $250,000, no matter what their origins are.
- Applicants have to show that they have been in business in the industry area to which they are applying for at least two years prior to the date of their 8(a) application. They can do this by submitting income tax returns showing revenues for those years.
- Applicants have to be deemed by the SBA to have a good probability of success in the industry in which they are involved. In making this determination, the Small Business Administration considers many factors, including the technical and managerial abilities and experiences of the owners, the financial situation of the applicant firm, and the company’s record of performance on prior federal and private sector contracts.
Businesses owned by white women may also be eligible for the program. In the past, these entrepreneurs had to demonstrate in strong terms that they had been discriminated against in the past because of gender, and that this discrimination had been sufficiently egregious to hinder their success in the business world. In the late 1990s, however, the SBA adjusted eligibility requirements to make it easier for white women-owned businesses to gain entrance into the 8(a) program.
Certain kinds of businesses are ineligible for inclusion in the 8(a) program. These include franchises of any kind, nonprofit organizations, brokers and packagers, and businesses owned by other disadvantaged firms. In addition, firms may be denied entry into the program for reasons of character. As defined by the SBA, demonstrations of “lack of character” may include any or all of the following:
- Adverse information regarding possible criminal conduct undertaken by the applicant and/or the firm’s principals.
- Violations of SBA regulations.
- Debarment or suspension of firms and/or individuals.
- Evidence of lack of business integrity (such as indictments, pleas of guilt in legal cases, convictions for violations of legal behavior, adverse civil judgements, or out-of-court settlements).
- Evidence that the company knowingly submitted false information during the application process.
- Owners and/or other principals of the firm are currently in prison, on parole, or on probation for criminal activity.
Waivers of the “Two-Years-In-Business” Requirement Under certain circumstances, the SBA permits small businesses that have not yet been in operation for two years to participate in the 8(a) program. These mitigating circumstances include:
- Individual or individuals making the application have “substantially demonstrated business management experience.”
- Applicant has sufficient technical expertise in his or her chosen area of business to make it very likely that he or she will be able to launch and maintain a successful business.
- Applicant had enough capital to carry out his or her business plan.
- Applicant shows that he or she has the ability to obtain the necessary personnel, facilities, equipment, and other requirements to perform all duties and obligations associated with contracts available through the 8(a) program.
- Individual or individuals making the application have a record of successful performance of contract work in the past, provided that those contracts (which may be from either government or private clients) are in the primary industry category in which the applicant is seeking program certification.
Applying To The 8(A) Program
Applications to the SBA’s 8(a) program can be made through local SBA district offices. Small business owners will be asked to provide a wide range of materials, ranging from personal and business financial statements to organization charts, licenses, and schedules of business insurance. As of September 2004, applications may be made through an electronic online application system that promises to make the process easier, faster and less expensive for small companies.
Rulings on completed applications are generally made within 90 days. Not all applicants are accepted into the 8(a) program, which has been a very popular one since its inception. If an application is turned down, the owner has the right to resubmit the application to the SBA with additional or changed information, but if the resubmitted application is still turned down, the owner may not present a new application until 12 months have passed from the date of the reconsideration decision.
Finally, in cases where the applicant has been denied enrollment in the program solely because of questions about the applicant’s social or economic disadvantage or majority ownership, then the owner may appeal the SBA’s decision to that agency’s Office of Hearings and Appeals (OHA). In this case, however, the applicant may not change the application in any way.
If a disadvantaged individual acquires a business that is enrolled in the 8(a) program, he or she may be able to continue to maintain the firm’s participation in the program, provided that prior approval was obtained by the SBA.
Companies that are accepted into the 8(a) program are not eligible for 8(a) contracts until they submit and receive approval from the SBA for their business plan.
After the firm has an approved plan, the length of time before the first 8(a) contract is awarded will vary based on the success of the firm’s marketing efforts, said the SBA.
While SBA will make every effort to assist a firm with its marketing efforts, the 8(a) program is a self-marketing program and SBA cannot guarantee 8(a) contract awards.
In addition to marketing assistance, participants in the 8(a) program receive help in the following areas during both the developmental stage (first four years) and transitional stage (next five years) of their involvement. During the developmental stage, enrollees can look forward to sole source and competitive 8(a) program support, transfer via grants of technology or surplus property owned by the U.S., and training to enhance entrepreneurial skills in a variety of areas. During the transitional period, meanwhile, small business owners can look forward to continued aid in the above areas, as well as assistance from procuring agents in forming joint ventures and technical assistance in planning for graduation from the 8(a) program.
8(A) Business Development Mentor-protege Program
In the late 1990s the SBA introduced a new Business Development Mentor-Protege Program meant to help improve the fortunes of 8(a) participants seeking federal government contracts. Mentors—which may include graduates of the 8(a) program, firms in the transitional stage of that program, or other businesses—are required to demonstrate the ability to assist the protege company for at least one year. Mentor companies also are required to be in good financial health and be existing federal contractors in good standing.
Companies interested in entering the program as protege firms, meanwhile, must be in the developmental stage of the 8(a) business development program, unless it has never received an 8(a) contract or is of a size that is less than half the size standard for a small business in its primary industry. It also must be qualified for inclusion in the 8(a) program in all other respects and be current with all reporting requirements.
Ideally, benefits of this special 8(a) program to the protege firm—which can have only one mentor at a time—will include technical and management assistance; options to enter into joint-venture business agreements with mentor firms to compete for government contracts; financial assistance in the form of equity or loans; and qualification for other SBA assistance programs. The Small Business Administration intends to conduct annual reviews of this program to evaluate its success, with an eye toward possible future expansion (or suspension, if it fails to meet stated goals).