The SBA has regulations in place that are designed to keep broker dealers from joining the 8(a) BD Program. This is because having “middle men” does not create value in the process nor meet the goal of helping long term sustainable businesses to get established. The average 8(a) firm uses their certification to realize over $6MM per year in federal sales.

Broker Definition: FAR 124.08

“(d) Brokers. Brokers are ineligible to participate in the 8(a) BD program. A broker is a concern 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.”

Exception: Real Estate Brokers are permitted to obtain the 8(a) Certification.

What the SBA will look at to determine if a firm is a broker:

     1. Invoices to the firm’s customers, do they contain a straight markup?

     2. Does the firm own warehouse space where it stores inventory?

     3. Does the applicant own delivery equipment for the product?

     4. The SBA will review the financial statements for things like inventory asset and cost of goods sold amounts.

Example of Broker Dealer Rules Pass/Fail:

Logistics Company A

Provides transportation and warehousing services but does not own a warehouse or the vehicles used in moving goods or services. Logistics Company A subcontracts all moving services. Its invoices only include the final cost of the product to the customer.

FAIL – This company is considered a Broker Dealer by the SBA

Logistics Company B

Provides transportation and warehousing services, and owns its own warehouse or vehicles used in moving goods or services. Logistics Company B subcontracts part of its moving services when the client requests service outside of their service area. Its invoices only include the final cost of the product to the customer.

PASS – This company is not considered a Broker Dealer by the SBA

Logistics Company C

Provides transportation and warehousing consulting services, but does not own a warehouse or the vehicles used in moving goods or services. Logistics Company C subcontracts all moving services. Its invoices are broken out to show what it pays its subcontractors and a fee is charged for helping the customer determine the best transportation method listed as a separate line item as Consulting Services.

PASS – If the company maintains consistent invoice practices and is only earning money on value the firm is adding through consulting, the firm would not be classified as a Broker Dealer by the SBA.

Things to Consider

The reality is that minor tweaks in a firm’s business model (or even as subtle as how they invoice) can change whether the firm is classified as a broker/dealer or a normal business. If obtaining an 8(a) Certification is part of your firm’s short-mid-long-term goals, I recommend reaching out to an industry expert consulting outfit such as ez8a or Advance 8a. Initial consultations are free of charge and they can help your firm understand the implications of specific rules such as these.