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If you are unfamiliar with the qualifications for the 8(a) Certification, one of the SBA’s major Potential for Success Criteria is that the firm has been in business for at least two years prior to applying for an 8(a) Certification. The SBA does offer a two-year waiver, and I will go over the details for that as well.
How does the SBA Define the Start Date for Your Business?
The interpretation the SBA uses to make this determination is that the firm must have had revenue and a tax return for a year in order to qualify as the start date for the business. The firm must have continuous revenue in each subsequent year or the start date for the firm is reset.
How does the SBA Treat Applications for the 8(a) Certification with Less Than Two-Years in Business?
Oftentimes I 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. I 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 experience working with the SBA, here are the conditions in which the SBA will approve an 8(a) application early:
1. The firm has ONE 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 owner’s 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, bear 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 dollars in the firm’s 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 two 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 two 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 two 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 – May 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 would like to know and understand your firm’s current set of circumstances and/or whether now would be a good time to apply for an 8(a) Certification, I always recommend contacting an industry expert such as ez8a or Advance 8a. Neither charge for an initial consultation.
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