The SBA 8(a) Business Development Program – What Is It and What Are the Requirements?

HOST: SUSAN MOSER: Welcome to today's podcast. My name is Susan Moser, a partner at Cherry Bekaert and leader of the firm's government contracts practice. Our podcast today will focus on the SBA 8(a) program.

HOST: SUSAN MOSER: This is the first in a series of podcasts that will discuss various aspects of the 8(a) program. Joining me today is one of my tax partners, JOHN URE, who works with many government contractors and 8(a) firms as well.

GUEST: JOHN URE: Today we will cover the basics of the 8(a) program: what it is, what opportunities it provides, and the requirements to apply. In subsequent podcasts we will address requirements to remain in the program and how to be successful.

HOST: SUSAN MOSER: A brief background on my experience with 8(a) contractors: in 2021 I realized it had been 30 years since I first started working with 8(a) companies. In 1991 I became a controller of an 8(a) firm after leaving public accounting, and I later served as CFO for another 8(a) firm before joining the firm to start the government contracts practice.

HOST: SUSAN MOSER: Our firm works with many 8(a) companies and we have seen many companies benefit from the program. The key to benefiting is understanding the program requirements: how to become 8(a) certified, what you must do to stay in the program, and how to graduate successfully. We will cover those aspects today and in future podcasts.

HOST: SUSAN MOSER: The Small Business Administration has a number of programs to help and promote small businesses in the United States. One way is to create federal contracting opportunities for small businesses.

HOST: SUSAN MOSER: There are many types of small business programs: service-disabled veteran-owned businesses, HUBZone businesses, small disadvantaged businesses, and others. The 8(a) program falls under small disadvantaged businesses and supports a government contracting goal to award at least 5% of prime and subcontract value to small disadvantaged businesses.

HOST: SUSAN MOSER: The 8(a) program is the most rigorous in terms of requirements, reporting, and compliance compared with many other programs. Many other programs are self-certifications, whereas the 8(a) program requires a formal application with specific requirements.

HOST: SUSAN MOSER: The 8(a) program is a nine-year program once you submit your application and are approved. Some companies may graduate early if they become too large or no longer need the program. The program provides significant opportunities, including eligibility for sole source awards up to $4 million, potentially multiple sole source awards, provided the firm is technically qualified and the government determines the price is fair and reasonable.

HOST: SUSAN MOSER: There are also many contract opportunities set aside for 8(a) firms, including pools of contract opportunities limited to 8(a) firms. Some of these contracts can be quite large.

HOST: SUSAN MOSER: Any company in the 8(a) program must be a small business. Government contracts include a NAICS code, the North American Industry Classification System code, which identifies the type of work or product the government will buy. Most NAICS size standards are based on either revenue or number of employees, so you must qualify as a small business under the applicable NAICS code.

HOST: SUSAN MOSER: Basic eligibility requirements include being both socially disadvantaged and economically disadvantaged. John will cover economic disadvantage in more detail, but I will discuss social disadvantage.

HOST: SUSAN MOSER: Socially disadvantaged individuals are those subjected to racial or ethnic prejudice or cultural bias in American society because of their identities as members of groups, without regard to their individual qualities. There are several groups with a presumption of social disadvantage, including Black Americans, Hispanic Americans, Native Americans including American Indians, Eskimos, Native Hawaiians, and others.

HOST: SUSAN MOSER: You must meet both social and economic disadvantage requirements to apply for the 8(a) program. There is an eligibility checklist of items you must satisfy; John will address many of those requirements.

GUEST: JOHN URE: To be economically disadvantaged, the SBA looks at the personal net worth of the individual or individuals upon whom eligibility is based. Personal net worth must be under $750,000. That net worth calculation excludes the ownership interest in the applicant company, the equity in the primary residence, and retirement plans subject to an early withdrawal penalty.

GUEST: JOHN URE: The applicant's adjusted average gross income over three years must be $350,000 or less on average. When making these calculations, we want to ensure the applicant is on a trajectory to remain below that threshold.

GUEST: JOHN URE: Total assets must be less than $6 million, calculated at fair market value of all assets owned. For this calculation, the primary residence and the value of the applicant company are included. Retirement plans subject to an early withdrawal penalty are not included.

GUEST: JOHN URE: These numerical thresholds are important to monitor as you progress through the 8(a) program to avoid graduating prematurely before you are ready.

HOST: SUSAN MOSER: A few additional eligibility points: you must be a small business and you must not have participated in the 8(a) program previously. The company must be at least 51% owned and controlled by U.S. citizens who are economically and socially disadvantaged.

HOST: SUSAN MOSER: The eligibility can be based on one individual who owns 51% of the company, or on multiple individuals whose combined ownership is at least 51%. For example, if a company has three owners and two meet the social and economic disadvantage requirements and jointly own 60% of the company, the company can qualify even if a third owner owns 40%.

HOST: SUSAN MOSER: Owners upon whom eligibility is based must be active in the day-to-day management and operations of the company and involved in long-term decision-making. Ownership that meets the requirements but is not active in the business will not support eligibility. Owners should demonstrate that their primary business focus is the 8(a) company and not other outside businesses.

HOST: SUSAN MOSER: Other requirements include demonstrating good character and potential for success. A general expectation is that a company should have been in business for two years to demonstrate the ability to be successful. You can request a waiver of the two-year requirement if you can demonstrate why you will still be successful in the 8(a) program.

HOST: SUSAN MOSER: An individual may acquire an existing business that has a history and track record; an acquisition by an eligible individual is permissible.

HOST: SUSAN MOSER: The SBA website contains an eligibility overview, application tips, and frequently asked questions. Over the last few years there was a dip in the number of companies being certified into the 8(a) program, which prompted a report to Congress and steps to make the process easier and increase certifications.

HOST: SUSAN MOSER: One change is the reapplication timeline. Previously, if an applicant was denied they could not reapply for a year; that waiting period has been reduced to 90 days.

HOST: SUSAN MOSER: Another improvement is centralization of the submission process. Applications are now submitted through a central portal electronically, so a dedicated group reviews and processes applications, which helps standardize decisions across regions.

HOST: SUSAN MOSER: We work with many companies that have been in the 8(a) program and we also help companies apply for the program. John, talk about financial preparation and what companies should have ready.

GUEST: JOHN URE: It is important to have your financials in order so the SBA sees a complete, well-organized application. We ensure tax returns are filed and accurate, and we prepare personal financial statements to demonstrate the thresholds we discussed are met.

GUEST: JOHN URE: Presenting a complete application gives a positive first impression to the SBA. Although reapplication is possible after denial, we prefer to get it right the first time.

GUEST: JOHN URE: The SBA provides an online eligibility checker that can help you see whether your company is likely eligible for programs including the 8(a) program. As a firm, we help companies line everything up so the application process is not stressful and we know in advance whether we expect to be eligible.

HOST: SUSAN MOSER: We often see applications with incomplete or incorrect information on the personal financial statement. The SBA personal financial statement is an SBA form and must be completed correctly. That statement is required annually while you are in the program.

HOST: SUSAN MOSER: As John said, prepare in advance. You must be registered in SAM.gov, the central database for federal contracting. Registration in SAM.gov is straightforward, and you do not need to pay someone to register you.

HOST: SUSAN MOSER: When applying, you must meet the requirements in both fact and appearance. Factually you must meet the eligibility criteria. In appearance, be mindful that the SBA will review public information such as your website and conduct searches to confirm the story presented in the application. Ensure the individuals upon whom eligibility is based appear to be leading and running the company.

HOST: SUSAN MOSER: Once your application is approved, you enter the 8(a) program and must submit annual updates and meet ongoing requirements. After approval, you become eligible for 8(a) contracts, including potential sole source awards up to $4 million without competition.

HOST: SUSAN MOSER: This podcast provided an initial overview of the 8(a) program. We have worked with hundreds of 8(a) firms over the years, and some of our largest government contractor clients started in the 8(a) program.

HOST: SUSAN MOSER: We view the program as a significant opportunity for companies that meet the requirements. We assist companies through the application process and throughout their participation in the 8(a) program.

HOST: SUSAN MOSER: We will have another podcast soon that will cover additional aspects of the 8(a) program.