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Oftentimes we talk to people who have a good track record in business and want to get into federal contracting with an immediate 8(a) Certification as part of their business plan. We cannot assist these people right away, as they do not meet the two-year requirement for business. There is a waiver for this requirement, and based upon my over ten years of experience working with the Small Business Administration, here are the conditions in which the SBA will approve an 8(a) application early:
1. The firm has 1 tax return for the firm that shows both revenue and a profit.
2. The firm has revenue in excess of $150,000 from its inception.
3. The owners resume supports being able to run this type of business.
4. The owner meets all other 8(a) requirements.
The following is how the SBA makes a determination as to whether or not a two-year waiver is required, keep in mind that both of the following factors must be met to not require a two-year waiver:
1. The applicant’s business concern must have been in business for two years as evidenced by two tax returns.
2. The applicant concern must have generated business in the businesses Primary Industry (NAICS code), for the preceding two years.
The following are examples to determine if a two-year waiver is required or not:
EXAMPLE 1 – Two-Year Waiver is Not Required
|
Year |
Sales |
Notes |
|
1 |
$0K |
|
|
2 |
$189K |
|
|
3 |
$369K |
|
|
4 |
$457K |
May – the owner quits his full-time employment and starts devoting full-time to the business. |
|
5 |
$500K |
January (Time of application) |
|
|
|
TWO-YEAR WAIVER IS NOT REQUIRED – the two-year waiver is not required because the firm has generated revenues for the last 2 years. |
EXAMPLE 2 – Two-Year Waiver is Required
|
Year |
Sales |
Notes |
|
1 |
$100K |
|
|
2 |
$500K |
|
|
3 |
$0K |
The firm is dormant in year 3 |
|
4 |
$200K |
January – New owner purchases the business |
|
5 |
$200K |
January – (Time of application) |
|
|
|
TWO-YEAR WAIVER IS REQUIRED – The two-year waiver will be required in this scenario, because the firm did not generate revenue in its Primary NAICS Code in the last 2 years. If the firm had revenue in Year 3 a two-year waiver would not be required. |
EXAMPLE 3 – Two-Year Waiver is Not Required
|
Year |
Sales |
Notes |
|
1 |
$500K |
|
|
2 |
$500K |
|
|
3 |
$500K |
|
|
4 |
$500K |
|
|
5 |
$500K |
December – Owner 1 buys out owner 2 and becomes 70% owner of the firm. |
|
6 |
$500K |
January – (Time of application) |
|
|
|
TWO-YEAR WAIVER IS NOT REQUIRED – A two-year waiver is not required because the firm has been in existence for more than 2 years. In this scenario, the SBA will review the legal documents closely. The documents will have to indicate that the owner has been the President (highest officer) for some time and that owner 1 has been signing contracts on behalf of the company for some time. The SBA will also look at all potential control issues closely to be sure there is no one else that has control over the owner. |
Example 4 – Two-Year Waiver is Not Required
|
Year |
Sales |
Notes |
|
1 |
$30K |
Firm is a sole proprietorship |
|
2 |
$50K |
Firm is a sole proprietorship |
|
3 |
$200K |
Firm is Incorporated – (Time of application) |
|
|
|
TWO-YEAR WAIVER IS NOT REQUIRED – A two-year waiver is not required because the firm has existed for over two years. Changing the legal structure of the business does not restart the clock for the two-year waiver. |
If you are wondering about how the 8(a) Certification could be beneficial to your small business, or have questions about your firm’s eligibility based on the two-year requirement (or any other qualification), I always recommend contacting an industry expert such as ez8a or Advance 8a. Neither charges for an initial consultation.
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