The preferential treatment given 8(a) certified firms is a game changer for small businesses considering the potential economic impact this SBA Socially Disadvantaged Business Certification provides. Here are six of the most common misconceptions about the 8(a) Certification. These misconceptions often lead to potential applicants coming to incorrect conclusions about their viability as an 8(a) applicant. Let’s review them in hopes of helping companies form the correct conclusions.
1.) Close Relative is Already an 8(a): Your Company cannot get 8(a) certified if a close relative is currently 8(a) certified. A close relative is defined by the SBA as either a brother, sister, parent, husband or wife. The SBA has a waiver which can be granted if the firm is located in a different region or industry than the close family relative.
2.) Two-Years in Business: Your Company cannot get 8(a) certified if it has not been in business for at least 2 years. There is a waiver process for businesses looking to obtain their 8(a) Certification sooner than 2 years. The typical requirements are that…
a. The owner of the firm has prior business experience.
c. The business has one tax return with revenue and income.
d. The firm has at least $150,000 in revenue from the firm’s inception.
Note: A two-year waiver is not needed if the company is only changing the organizational structure of the business. For example: Changing a sole-proprietorship to a corporation.
3.) Past Unsuccessful Applicant: Your Company cannot get certified if your past application has been rejected by the SBA. The SBA rejects 75% of all applications for lack of completeness. 8(a) applications rejected on the first attempt is very common. In the case of a full denial by the SBA, the firm can apply again after waiting a 90-day period.
4.) 8(a) Value Generation: The 8(a) Certification really can’t do that much for my business. In 2019, 8(a) certified companies received $51.6 Billion dollars which represented over 8 million dollars in annual revenue per 8(a) firm.
5.) Younger Smaller Firms: My Company should be a well-established mid-tier business before I apply for the 8(a) Certification. The SBA gives 8(a) companies the ability to engage in Joint Venture Partnerships and Mentor Protégé Arrangements with larger governmental contractors. These relationships can greatly increase a firm’s growth rate by providing the 8(a) firm with expertise, bonding, insurance, financial capabilities as well as other assistance. On average, firms with 2-3 years of business history with a focus on federal contracting have the best track record for first year sales in the 8(a) BD Program.
6.) Being Socially Disadvantaged: I must be 100% member of a minority group in order to prove to the SBA I am socially disadvantaged. An individual that can trace 25% of their blood-lineage to a presumed disadvantaged minority group is eligible for 8(a) given adequate supporting documentation showing the person holds themselves out to be part of that minority group.
If you have any questions on getting qualified for an 8(a) certification or would like a more in-depth analysis, I always recommend contacting an industry expert such as ez8a or Advance 8a. Neither charge for an initial consultation.