The 8(a) Certification represents a substantial opportunity for most small business firms. A clear understanding of the qualifications that are required for the 8(a) Certification is the best place to start for the Aspiring 8a, aiding in planning a future application.

Major Requirements Include the Following 8 Areas:

I.             The business must be an active business.

II.            The owner must have full-time devotion to the applicant concern.

III.           The owner must be economically disadvantaged.

IV.          The owner applicant must have unconditional control of the firm.

V.            The business must have adequate financial reporting.

VI.          The business must be an active concern. 

VII.         The firm’s principal owner must be socially disadvantaged.

VIII.        Other considerations reviewed by the SBA.

I.  The business must be an active business

•             Strong Candidate 100% – 2 years in business with over $100,000 in revenue in each of the two years with a profit in one or both of those two years. The firm should be currently profitable on its most recent tax return.

•             Medium Candidate - If the firm has not been in business two years then the 8(a) applicant owner must have a very strong resume, have completed work on two or more contracts and have at least:

                - $150,000 in revenue in the past 12 months;

                - Have filed a tax return for the applicant business;

Note:  If a firm was created over two years ago as a legal entity but has not had revenue in the past year, this business will need to meet the requirements of the Medium Candidate as the SBA will view this company as a new firm.

II. The owner must have full-time devotion to the applicant concern

        •    In most cases a business owner cannot be receiving W2 income from another source because the owner of the firm must be a dedicated full-time employee of the firm applying for 8(a).

                - The owner only needs to be full-time for 2-3 months prior to the application date.

                - The owner must be available at the 8(a) firm from 9am-5pm Monday through Friday.  

        •    The business cannot be a wholly owned subsidiary of another company. If the business is owned by a trust, the trust must be revocable.

                - Ownership by a trust may be treated as direct ownership if the trust is revocable.

                - The disadvantaged individual must be the grantor, the sole trustee, and the sole current beneficiary of the trust.

•             An 8(a) firm cannot own more than 10% of an applying company as well as the applying company cannot own more than 10% of an 8(a) company.

•             The person or persons that the firm is attempting to obtain 8(a) status must be US citizens and 51% of the firm must be owned by US citizens.

•             All the owners must be of good moral character, meaning no recent background issues or felonies.

III. The owner must be economically disadvantaged

1.            The owner must have an adjusted net worth of less than $250,000, excluding the value of the applicant’s following items:

                - Personal residence.

                - IRA or 401K retirement accounts.

                - Ownership in the business which is applying for the 8(a) Certification.

2.            The owner’s total Assets, not including the assets of their spouse, if married, must be less than $4,000,000.  (the SBA will exclude the value of the applicant’s retirement accounts.)

3.            The Adjusted Gross Income (AGI), for the applicant excluding their spouse, if married, must average less than $250,000 per year for the last 3 years.

                The amount the SBA will use is taken from IRS Form 1040, line 36 with the following exceptions:

                - If the person is married, break out the income between the 8(a) applicant and spouse. For example, even if the husband makes $500,000 per year a case can still be made that the wife is economically disadvantaged.

                - Tax payments made to the Federal Government for profits made by the business can be deducted from AGI, or money the business makes that is retained.

                - If the entity is a Sole Proprietorship, LLC or S Corp, the income flows through to the individual’s tax return is also excluded.

                Note:  The theory being your AGI needs to be adjusted so you are not penalized for your choice of entity type.

IV. The owner/applicant must have unconditional control of the firm

•             UNDER NO CONDITION can the “majority owner” of the business have the potential to be changed or altered. This is an absolute deal breaker for the SBA and must be removed prior to application submission.

                The SBA will check to see if any of the following conditions are present:

                - Stock Options owned by another individual whereby the execution of those options would result in a change of ownership where the 8(a) applicant would no longer have majority control.

                - Separate classes of stock where the 8(a) applicant does not have controlling rights.

                - Excessive amounts of debt that is not to a financial institution that could allow the debt holder to elicit control over the 8(a) applicant.

                - A second owner of the firm that holds a certification or a degree that the 8(a) owner relies upon in order to conduct business.

                Note: This is not a control issue if the certificate or degree holder does not own stock in the 8(a) firm and it can be demonstrated that the skills are readily available in the open marketplace.

                - Owner is not the only signer on all bank accounts.

•             Anything that could present a control issue must be removed prior to submission. If the owner has any other outside business interest these interests must be strictly limited.

                - The owner must work full-time for the 8(a) business dedicating 40 hours per week to the 8(a) applicant firm.

                - The 8(a) applicant cannot be active in managing another business.

                - The 8(a) applicant cannot be receiving W2 income from other sources during normal business hours.

•             The 8(a) applicant owner must be in immediate charge of the business and therefore, the minimum requirements for showing control are:

                - Owner must have the title of President or other highest title of the firm.

                - Sign all contracts with its customer, and have the ability to run the company on their own without the skill sets of others.

V. Business must have adequate financial reporting

•             Financial Statements are needed that tie to the firms tax returns for the past three years (except for two year waiver applicants).

•             Current financial statements are a requirement from the SBA for any 8(a) application.

VI. Business must be an active ongoing concern

•             The company must be a for-profit business (not a not-for-profit)

•             The firm must be currently making money or have made money in the past such that an argument can be made for any current profitability issues.

•             The company cannot be a broker/dealer - meaning the firm actually touches the product or performs the service.

                - Exception to Broker Deal is a Real Estate Broker wanting to bid on HUD Contracts.

                - A company must add value to the product or service.  This added value can be through consulting services and must be displayed in past contracts and on invoices that the company has performed.

•             The company must be adequately capitalized, meaning the company has enough money to successfully perform government contracts.

VII. The firm’s principal owner must be socially disadvantaged

•             In an ideal application, the owner is a member of one of the following groups:

                - Black American                               

                - Hispanic American

                - Native American                             

                - Asian Pacific American

                - Subcontinent Asian American

Included Countries of Origin:

Black Americans; Hispanic Americans; Native Americans (American Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust, Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands, Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent Asian, Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal)

You can also apply as a non-presumed group if you are in one of the following groups:

•             White Female – she will need to be able to substantiate the gender bias with at least 7-10 supporting documents. Letters from friends, co-workers, former employers, customers and vendors.  Must show a lifelong pattern of discrimination.

•             Service-Disabled Veteran – he/she will have to be able to show how this service disability affects the businesses ability to compete in the general economy. 10-15 documented cases should be provided.

VIII. Others Requirements

•             If any of the owners that make up the 51% majority have ever been previously 8(a) certified, the firm is not eligible.

•             Back taxes or delinquent federal loans must be satisfied or a repayment plan must be in place in which that individual is current.

If after going through any of the 8(a) qualifications you still have questions on getting 8(a) certified, or would like guidance with the process, I recommend reaching out to an industry expert like ez8a at (859)442-3300. They do not charge for an initial consultation.