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March 6, 2023//by Hutch
Note: This post has been updated with the latest information from SBA on their 2023 social disadvantage requirements.
The US government awards billions of dollars in contracts every year. Becoming a government contractor can be a game changer for small businesses looking to grow their clientele, but it can be hard to break into this space.
Unlike a private sector client that can simply choose a firm to work with, the federal government needs to ensure that there’s free and open competition. The competition for government work can be fierce, and this can make it hard for small businesses to break into this space.
To even the playing field for small businesses owned by socially and economically disadvantaged people, the Small Business Administration (SBA) created the nine-year 8(a) program. The program provides 8(a)-certified businesses with training, technical assistance, and special set-aside and sole-source contracting opportunities.
These sole source contracts can be especially huge for small businesses. Through them, 8(a)-certified firms can win new government work with no competition.
But the 8(a) program is difficult to get into, and it has some stringent eligibility requirements that can be hard to make sense of. This post will help you unpack these requirements.
8(a) program eligibility requirements.
If you’ve explored the 8(a) program at all, you’ve probably come across SBA’s list of 8(a) program qualifications.
SBA’s eligibility criteria for the 8(a) program:
- You must be a small business.
- You must not have previously participated in the 8(a) program.
- Your firm must be at least 51% owned and controlled by US citizens who are socially and economically disadvantaged.
- You must have a personal net worth of $850 thousand or less, adjusted gross income of $400 thousand or less, and assets totaling $6.5 million or less.
- You must demonstrate good character.
- You must demonstrate your potential for success, such as having been in business for two years.
But what do these requirements actually mean? And how does SBA evaluate you against them?
You can check out SBA’s Am I Eligible? tool for help determining if you qualify for the 8(a) program. But if you want to really understand each of these eligibility requirements, these next sections are for you.
Your company must be a small business, as determined by its primary NAICS code.
To do business with the federal government, small businesses have to register in the System for Award Management (SAM). When you register in SAM, you have to select your primary NAICS code. These codes are grouped by industry and provide information on the types of goods or services that your business provides.
The SBA assigns a specific size standard to each NAICS code, which is what will be used to determine if you qualify as a small business. You can use SBA’s Size Standards Tool to easily check if you qualify as a small business. Or you can check out the SBA’s Table of Small Business Size Standards.
It’s important to note here that your size is based on your primary NAICS only. If you qualify as a small business under a secondary NAICS code that you have listed in SAM, but not your primary one, you won’t be eligible.
You can’t have previously participated in the 8(a) program (and neither can your business).
Heads up, serial entrepreneurs: the 8(a) program is a one-time-only experience for both firms and individuals. A business can only participate once, even if the ownership and control of that business has completely changed.
And a person can only participate once, too. Once you’ve used your disadvantaged status to qualify one firm, you’re considered non-disadvantaged by the SBA after that. Because of this, it’s critical that — even if you’re eligible —you make sure you’re ready to take full advantage of the 8(a) program before you apply.
Your business must be at least 51% owned and controlled by US citizens who are socially and economically disadvantaged.
This is one of the more complicated requirements, so let’s break it down.
What’s meant by “51% owned and controlled.”
To be eligible for the 8(a) program, you have to have majority ownership of your company. You also have to be a US citizen and to manage the business on a full-time basis (it’s very hard to get in if you have any outside employment).
SBA will also review your business’s bylaws and operating agreements to make sure that you aren’t operating under negative control. In this situation, you may be the owner of the business on paper, but can’t actually do anything without someone else’s go-ahead. To be eligible for the 8(a) program, you need to have majority control of your business with no strings attached.
What’s meant by “socially disadvantaged.”
As of August 21, 2023 SBA has updated their socially disadvantaged requirements, and applicants hoping to receive 8(a) contracts now need to submit a social disadvantage narrative.
Before this change, Black Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans were automatically considered socially disadvantaged. But SBA can no longer presume the social disadvantage of applicants.
If you’re currently applying for the 8(a) program or your application is in process, you’ll be required to include a social disadvantage narrative. If you have submitted your application and you haven’t included this narrative, your application will be returned to you requesting this information. If you have not submitted your application, you can upload your narrative at any time.
For more information on the new social disadvantage requirements, read SBA’s FAQ.
What’s meant by “economically disadvantaged.”
In addition to being socially disadvantaged, you also have to be economically disadvantaged to be eligible for the 8(a) program.
What SBA means by this is that your reduced access to capital and credit has put you at a competitive disadvantage, making it hard for you to participate on an even footing in the free market.
The next requirement is closely related, laying out specific financial caps that 8(a) applicants have to adhere to.
You must have a personal net worth of less than $850 thousand, an adjusted gross income of $400 thousand or less (averaged over the past three years), and assets totaling $6.5 million or less.
To ensure that the 8(a) program is supporting economically disadvantaged individuals, SBA sets out some strict requirements for your personal net worth, adjusted gross income, and total assets. Some exclusions apply (for example, when calculating your personal net worth, you can exclude the value of your primary residence). But outside of these exclusions, these numbers are very firm.
To prove that you’re eligible for the 8(a) program from a financial standpoint, know that you’ll have to submit detailed documentation for you, your spouse (if you have one), and your business.
You have to demonstrate good character.
This one can be pretty subjective, and how exactly it’s determined is based on the analyst you get. Because of this, it’s critical that you build a good relationship with your SBA analyst — especially if something in your past could be considered a point against your character.
Some things that SBA considers evidence of bad character include:
- Information on possible criminal conduct by the applicant or its principals
- Violation of SBA regulations.
- Debarred or suspended individuals or firms.
- Applicant firms and principals that lack business integrity as shown by an indictment, guilty plea or civil judgment.
- Any principal who is incarcerated or on parole or probation.
- Evidence that the firm knowingly submitted false information during the application process.
- Any firm or any of its principals that fail to pay financial obligations to the Federal Government.
You have to demonstrate your potential for success, such as having been in business for two years.
This requirement is also a bit subjective, so it can trip people up. Essentially, this means that you need to convince SBA that your business can be successful in the program. This question is all about persuading the agency that you’re worth their investment.
To determine this, SBA will ask for proof that you’ve been operating in your primary industry for at least two years. (Note that the application will ask you for three years’ worth of financial statements, but you only need a minimum of two.)
If you haven’t been in business for two full years yet, you can seek a waiver for this requirement. But the waiver is incredibly difficult to get, so we don’t recommend going this route. Instead, we suggest waiting this out. Take the next year or two to generate stronger revenue, set up your lines of credit, and line everything up so you can hit the ground running when you are eligible.
To determine your potential for success, SBA will also look into your:
- Financial capability (including capitalization, financial performance, bonding capacity, and manageable debts).
- Managerial and technical capability (including performance on past contacts, prior experience, and personnel, licenses, certifications, and facilities).
- Management capability (including the education, experience, and training of the CEO and other managers, the magnitude and complexity of past and current jobs, and your management systems).
- Qualifications for your ability to perform on federal contracts (including your relevant contracting experience and ability to meet federal procurement policies).
Ineligible people and businesses.
In addition to the requirements above, there are also a few things that will automatically exclude you and your business from participating in the 8(a) program.
First, you can’t be a broker or a nonprofit organization. Second, you and your business can’t have been debarred or suspended in the past. Any of these are an automatic no-go for SBA.
Eligibility is just one piece of the 8(a) puzzle.
If you think your firm is eligible for 8(a) certification, congratulations! The program could be a huge help to you and your business.
But, while knowing if you’re eligible for certification is an important step, there are other things to consider before you get 8(a) certified. The 8(a) certification process is intense, and it requires a big upfront investment of time and resources. And the program isn’t for startups, so you’ll want to make sure you’re ready when you apply.
If you’re not sure whether you should move forward with the 8(a) program, check out our guide for how to decide if you should get 8(a)-certified.
