In order for an 8(a) applicant business to become certified, one of the most important guidelines the firm must pass is the 70% rule. For those of you unaware of the 70% rule, it requires that in order to qualify for the 8(a) Certification, not more than 70% of the firm’s billing can come from a single source. Generally, the SBA evaluates the firm’s billing on a rolling 12-month basis. Here are two examples below showing different outcomes based on when the perspective firm decided to begin the application process.

Example A:

Month/Year                       Customer                            Billing

June, 2018                           ABC                                        $0

                                              XYZ                                         $0                          

July, 2018                             ABC                                        $10,000

August, 2018                      ABC                                        $10,000

September, 2018               ABC                                        $2,500

                                              XYZ                                         $7,500  

October, 2018                    ABC                                        $10,000

November, 2018               XYZ                                         $10,000

December, 2018               ABC                                        $10,000

January, 2019                    ABC                                        $7,500

                                             XYZ                                         $2,500

February, 2019                  ABC                                        $10,000

March, 2019                       ABC                                        $5,000

                                              XYZ                                         $5,000

April, 2019                           ABC                                        $10,000

May, 2019                            XYZ                                         $10,000

Total                                                                                      $110,000

Total on a rolling

12-month Basis:                ABC                                        $75,000                                 68.18%

                                             XYZ                                         $35,000                                 31.82%

This firm is Eligible because its largest customer ABC represents only 68.18% of the firm’s billing on a 12-month basis.

Now let’s take a look at what would have happened if they waited until the following month to apply.

Example B:

Month/Year                       Customer                            Billing                   

July, 2018                             ABC                                        $10,000

August, 2018                      ABC                                        $10,000

September, 2018              ABC                                        $2,500

                                             XYZ                                         $7,500  

October, 2018                    ABC                                        $10,000

November, 2018               XYZ                                         $10,000

December, 2018               ABC                                        $10,000

January, 2019                     ABC                                        $7,500

                                              XYZ                                         $2,500

February, 2019                  ABC                                        $10,000

March, 2019                       ABC                                        $5,000

                                              XYZ                                         $5,000

April, 2019                           ABC                                        $10,000

May, 2019                            XYZ                                         $10,000

June, 2019                           ABC                                        $10,000

Total                                                                                      $120,000

Total on a rolling

12-month Basis:                  ABC                                        $85,000                                 70.83%

                                                XYZ                                         $35,000                                 29.17%

This firm is Ineligible because its largest customer, ABC, represents 70.83% of their total business and is over the 70% threshold on a rolling 12-month basis.

There are exceptions to this rule, such as if a firm is applying with a two-year waiver, and only has one client or the client is the government. The SBA will then waive the 70% requirement because it is unlikely that a firm this new would have achieved the requisite 70% level of client diversity.