Join Cherry Bekaert’s Government Contractor Services Group for part two of our new podcast series discussing various aspects of the Small Business Administration’s (SBA) 8(a) Business Development Program, created to help small disadvantaged businesses wanting to do business with the Federal government gain a foothold in Federal government contracting.
In this second episode, Susan Moser, Partner and Leader of Cherry Bekaert’s Government Contracting practice and John Ure, Tax Partner and member of the Firm’s GovCon practice discuss:
- What you will need to prepare for the 8(a) application process
- The five-part application – eligibility, ownership requirements, controls, potential for success and character, an overview and guidance on each section of the application, the requirements and what information and documents will need to be provided
- SBA approval – top 10 reasons why companies do not get approved
If you haven’t already, catch up on part one of the series where we discuss the overall SBA 8(a) program, eligibility for getting into the program, what is needed and what is required:
- Part I: The SBA 8(a) Business Development Program – What Is It and What Are the Requirements?
- Part 3: What Are the Compliance Requirements for 8(a) Certified Companies?
- Part 4: Winning an SBA 8(a) Sole Source Award Contract – What’s Involved and What to Know
- Part 5: Winning an 8(a) Competitive Contract
- Part 6: Small Business Administration (SBA) Mentor-Protégé Program
- Part 7: The Lifecycle of an SBA 8(a) Company
- Part 8: OIG Report: SBA’s Business Development Assistance to 8(a) Program Participants
In future segments, we will discuss what happens when you get certified, winning sole source and competitive contracts and the All Small Mentor Protégé Program.
Our Government Contractor Services group has an in-depth understanding of the 8(a) program and advises a number of 8(a) government contractors through each step of the process to add value and anticipate ongoing opportunities. From the initial important decisions made in becoming an 8(a), to the first contract, to how the company is growing throughout the life of the program.
View All Government Contracting Podcasts
JOHN YORE: Welcome to our GovCon podcast. This is John Yore, partner at Cherry Bekaert. This is our second in a series on the SBA 8(a) program.
JOHN YORE: I joined Susan Mosier here today. She is a partner at our firm and leader of our firm's GovCon Industry Group. Today we'll talk about the application process for certification by the SBA.
JOHN YORE: Initially, when you're looking at getting into the 8(a) program, go to certify.sba.gov and review the application checklist to gather documents before you start. You also need to obtain a DUNS number through Dun & Bradstreet’s DUNS Request Service; DUNS stands for Data Universal Numbering System.
JOHN YORE: After you receive your DUNS number, go to SAM.gov to create an account using that number. This usually takes several days. Once you are in that system, you can create an account on certify.sba.gov, which is the portal the SBA uses for the 8(a) application process.
JOHN YORE: In Certify, set up your login and password and upload documents; the entire application process is in that portal. You do not need to complete it in a single session—you can save and return to sections—but you cannot proceed past certain checkpoints until required information is uploaded. Most owners complete the application themselves because they have the best access to personal information, but you may hire someone to assist.
JOHN YORE: I’ll turn the time over to Susan to discuss application details and requirements.
SUSAN MOSIER: In our first podcast we discussed the overall 8(a) program and its benefits. It is rigorous in terms of application and ongoing compliance. A couple of things have been simplified: the application is entirely online and evaluation is centralized at two SBA locations.
SUSAN MOSIER: The application is broken into five sections: eligibility, ownership, control, potential for success, and character. The eligibility section covers questions and documentation demonstrating that you qualify for the program.
SUSAN MOSIER: The ownership section requires extensive documentation proving ownership, depending on your entity type. Corporations need articles of incorporation, bylaws, shareholder minutes, and stock certificates. LLCs need articles of organization and operating agreements.
SUSAN MOSIER: The control section focuses on whether the individuals upon whom eligibility is based—the disadvantaged individuals—are actually running and controlling the company. The SBA asks many questions and requests documentation to verify control.
SUSAN MOSIER: The potential for success section assesses viability. You will be asked for prior tax returns, financial statements, and other documentation to show the business is likely to succeed. The character section addresses whether you are permitted to do business with the government.
SUSAN MOSIER: Under eligibility, the SBA will ask about social disadvantage and economic disadvantage. The 8(a) program requires at least 51% unconditional ownership, control, and management by socially and economically disadvantaged individuals.
SUSAN MOSIER: The SBA presumes certain groups to be socially disadvantaged: Asian Pacific Americans, Black Americans, Hispanic Americans, Native Americans, and Subcontinent Asian Americans. Native Americans must provide proof of membership in a federally or state-recognized tribe.
SUSAN MOSIER: If you are not a member of a presumptively disadvantaged group, you may still claim disadvantaged status but must meet a higher evidentiary standard by a preponderance of the evidence. That requires specific examples, including names and dates, showing chronic and substantial discrimination.
SUSAN MOSIER: For economic disadvantage, you will provide detailed financial information. The personal financial statement is now part of the online application, and you will list personal assets and supporting documents.
SUSAN MOSIER: In the ownership section, provide entity-specific evidence of ownership. If you reside in a community property state, you must provide additional information. Community property complicates ownership analysis and may require a transmutation agreement to show the disadvantaged spouse owns at least 51% of the business.
JOHN YORE: Which states are community property states?
SUSAN MOSIER: Currently there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you are in one of those states, consult an advisor about required documentation and possible transmutation agreements.
SUSAN MOSIER: The ownership section also asks about changes in name or legal status in the last two years, buy-sell agreements, shareholder agreements, and interests in other entities. The owner upon whom eligibility is based must own 51% or more of the company. Any individual or organization with more than 10% ownership will trigger additional information requests.
SUSAN MOSIER: The SBA will also review whether individuals with interests in other 8(a) companies exceed permitted ownership thresholds. You must disclose affiliated entities and demonstrate the disadvantaged owner devotes 100% of their time to the certified business.
SUSAN MOSIER: On control, the SBA investigates whether other persons or entities exert influence over company operations, including through financing, leased space, or equipment. The SBA examines relationships with former employers, parents, or others who may have leverage over the business.
SUSAN MOSIER: For potential for success, you generally must be in business for two years, although waivers are available in limited circumstances. If you have not generated revenue, you should wait until you have revenue before applying.
SUSAN MOSIER: You will be asked to submit the prior three years of tax returns, federal returns with schedules, interim and year-end balance sheets and profit-and-loss statements, accounts payable and receivable aging reports, and loan documents showing access to capital. If your business requires a professional license, you must provide it.
SUSAN MOSIER: You should list current and past federal and non-federal contracts and other revenue sources. You do not have to have held a government contract to be approved, but you must demonstrate business viability.
JOHN YORE: How problematic are accounting issues, such as retained earnings not rolling or an unbalanced balance sheet?
SUSAN MOSIER: Many small businesses handle bookkeeping in-house and may have imperfect financials. If something looks out of whack, provide an explanation. Losses alone do not automatically disqualify you, but you must present a reasonable explanation and supporting documentation.
SUSAN MOSIER: The SBA will also ask about owner compensation. While there used to be an assumption that the eligible owner was the highest-paid, that is not always the case. Owners sometimes defer salary to fund hiring; provide a full explanation where compensation appears atypical.
SUSAN MOSIER: The character section addresses debarment or suspension from government contracting. The Department of Labor’s Office of Federal Contract Compliance Programs maintains lists of prohibited parties; you should check those lists for subcontractors. The character section also asks about outstanding obligations, delinquent tax returns, loans, lawsuits, and prior bankruptcies.
SUSAN MOSIER: Prior bankruptcy is not an automatic disqualifier, but you must provide a complete and candid explanation. Be forthcoming on all character-related questions.
JOHN YORE: It’s important that your documentation aligns in fact and appearance. Your application narrative, uploaded documents, and public materials like your website should tell a consistent story. Discrepancies create issues.
SUSAN MOSIER: Personal financial information requires listing current assets at fair market value. If assets are jointly owned with a spouse and you do not reside in a community property state, list 50% of jointly owned assets. Provide spouse information as required, including details where debt and ownership differ between spouses.
SUSAN MOSIER: Citizenship is a requirement; provide evidence. The SBA’s website provides detailed guidance on specific documents to include.
JOHN YORE: A lot of applications are initially denied. The SBA published the top ten reasons for 8(a) application rejection.
JOHN YORE: Number 10: outstanding federal tax obligations or failure to demonstrate those obligations are satisfied or on a payment plan.
JOHN YORE: Number 9: obvious fronting arrangements where an ineligible person is attempting to use an eligible individual to access the program.
JOHN YORE: Number 8: control or potential control by a non-disadvantaged individual or company, including leverage via financing, leased space, or equipment.
JOHN YORE: Number 7: failing to submit evidence proving social disadvantage when not part of a presumptive group.
JOHN YORE: Number 6: failing to demonstrate full-time devotion to the business.
JOHN YORE: Number 5: submitting unreliable or incomprehensible financial statements.
JOHN YORE: Number 4: failing to submit business financial statements, assuming tax returns alone are sufficient.
JOHN YORE: Number 3: submitting incomplete tax returns, both personal and business.
JOHN YORE: Number 2: failing to provide corporate information such as stock certificates and meeting minutes.
JOHN YORE: Number 1: failing to submit supporting documents and only filling out the online form without uploads.
SUSAN MOSIER: The application is designed so owners can complete it themselves, but it is often prudent to have an advisor review your submission to ensure it accurately presents your business and fully addresses any potential issues.
JOHN YORE: That concludes this episode. In our next podcast on the 8(a) program, we will discuss what happens after initial acceptance into the program and the steps that lead to winning your first contract. For more information on matters of interest to government contractors, you can check our website cvh.com.
