The Goal

For many firms, becoming 8(a) Certified alters the trajectory of their business. They begin with sole source contracts commensurate with their firm’s capabilities and eventually grow to complete for larger 8(a) set-aside contracts. A well-executed 8(a) business plan can get the firm to or past the over $6MM average annual revenue that 8(a) firms have been posting for some time now.

About the 8(a) Certification

The 8(a) firm is regarded as the Federal Minority Business Certification due to the applicants need to have suffered from Social Disadvantage. There are additional factors that the SBA considers in granting the certification. Affiliation is one of those factors and under some circumstances the SBA will deem two entities to be acting as one. A finding of Affiliation by the SBA in most cases results in a denial of the 8(a) application.

What is Affiliation?

If one business concern or entity has the power to control another either directly through ownership structure or indirectly by other means, this will cause the SBA to combine or “affiliate” the two entities.

Why Identity of Interest is Important?

An affiliation can take almost any form, meaning that due to commonality between the two firms they become affiliated. In addition, the SBA will view the totality of the circumstances and may find two firms to be affiliated even if one single factor alone by its own merit or weight would not create an affiliation.

What is the Power to Control?

In addition, control does not have to be exercised to create an affiliation, the power to control only has to exist and be exercisable at some future date to create the affiliation.

For the purpose of getting your firm 8(a) certified, having the firm be affiliated with another firm opens the application to two additional areas of scrutiny:

Control – The SBA will look for any possible negative control issues from the other firm.

Size – The SBA will require proof that the combined companies do not exceed the applicant firm size standard if affiliated.

What Factors does the SBA review to make an Affiliation Determination?

1.            Ownership structure of the firm

2.            Shared management between firms

3.            Common ownership between firms

4.            Certifications needed by management to run the day to day operations of the firm

5.            Previous relationships with ties to another concern

6.            Contractual Relationships

7.            Share employees between firms

8.            Commonality of Name

9.            One entity providing a large portion of another’s total revenue

10.          One entity is a major or exclusive supplier to another firm

11.          One firm provides financing or loan guarantees or bonding to another firm

12.          Identity of Interest – meaning the SBA is affiliating the two entities for some other reason.

Are there specific Instances where the SBA is very likely to Affiliate two firms?

1.  If an owner of the firm who has 10% or greater interest in the 8(a) applicant firm and also owns another business in a similar industry, the SBA in most cases will affiliate the two firms.

2.  If an owner of the firm has a spouse that has a firm in the same industry as the applicant concern, even if the spouse has no ownership of the 8(a) applicant concern, the two firms will be affiliated.