Prior to COVID-19 and the recent economic downturn, there had been roughly 543,000 new small businesses formed each year in the United States. 45% or 244,000 of these businesses were owned by individuals with minority heritage. For most of these new businesses, the SBA’s “Potential for Success” threshold that must be met in order to qualify for the 8(a) Certification is too great for many small businesses.

Basic 8(a) Potential for Success Requirements:

1. Owner of the firm must work full-time for the business.
2. The firm must be profitable.
3. Not more than 70% of the firm’s revenue can come from a single source.
4. The firm must have been in business for two years prior to applying. (There is a two-year waiver exception.)

On the surface, these requirements don’t seem like they would be that hard to meet. However, when we look at small business statistics here are the realities:

• Over 20% of businesses fail within the first two years, generally due to cash flow problems.
• Only 40% of small businesses are profitable.
• Only 64% of small businesses have a website.
• Only 14% of small businesses have an owner making over $100,000 per year in annual salary.

Business earning potential for 8(a) firms is enormous, there are around 5,800 8(a) firms sharing well over $40B per year in federal contracts. Therefore, for firms that cannot meet the potential for success thresholds, can oftentimes establish themselves as a HUBZone certified firm first, as the HUBZone certification does not have potential for success requirements.

The two main requirements for the HUBZone Certification are:

1. The firm must be located in a HUBZone.
2. At least 35% of the firm’s employees must reside within a HUBZone. For purposes of HUBZone, an employee is counted as either the owner of the firm or an individual that works at least 40 hours in a month for the firm.

HUBZone Map
https://maps.certify.sba.gov/hubzone/map#center=39.828200,-98.579500&zoom=5

There are around 7,300 HUBZone firms sharing $10.8B in federal sales, therefore the average HUBZone firm does over $1.4MM in federal sales.

If your goal is to one day obtain the 8(a) Certification, but cannot currently meet the SBA’s Potential for Success Standards, a HUBZone certification could provide the interim solution your firm needs in order to one day realize your 8(a) goal.

If you would like to fully understand your firm’s current set of circumstances and potential for either the HUBZone Certification and/or 8(a) Certification, I always recommend contacting an industry expert such as ez8a or Advance 8a. Neither charge for an initial consultation.