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The 8(a) Business Development program is a Small Business Administration initiative designed to level the federal government contracting playing field for small business owners who are socially and economically disadvantaged. Qualifying businesses can compete for contracts that are set aside specifically for members of the program. They also can get help from SBA experts on submitting government contract bids, connect with mentors and tap other helpful resources.

With annual purchases topping $500 billion, the U.S. government is the world’s largest customer. Federal law requires 23% of those orders go to small business sellers.  Other statutory requirements call for the various federal agencies to devote set amounts of their budgets to buying from women-owned businesses, companies owned by service-disabled veterans and others. The 8(a) business development program aims to make sure a fair share of those dollars go to business owners facing obstacles due to economic circumstances, race or ethnic background.

8(a) Benefits

The benefits of participating in the 8(a) program fall into two main categories. In addition to being able to bid on contracts set aside for them, they can use special SBA resources to help them navigate the government contracting world.

The most concrete benefit of 8(a) participation is getting exclusive access to win certain contracts as sole-source providers on government contracts. The sole-source contracts can be worth up to $6.5 million for manufacturers and up to $4 million for sellers of goods and services. For larger contracts, 8(a) participants can band together to form joint ventures and bid collaboratively.

The mentoring part of the 8(a) program encourages participating businesses to connect with larger firms so they can jointly bid on contracts that have been set aside for small contractors. The protégé small business can benefit from its mentor’s expertise as well as financial assistance. The mentor gets the green light to bid on contracts that it would not be able to go after without its protégé. Only small businesses that have never gotten a government contract can participate in this program.

Small businesses in 8(a) also can be assigned a business opportunity specialist, which is an SBA employee trained to help small contracts. SBA also puts on workshops on marketing, management and other topics for 8(a) businesses. And 8(a) participants can get access to surplus government property, SBA-backed loans and help with surety bonds.

8(a) Qualifications

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To participate in 8(a), businesses must first fit SBA’s size standard for a small business.  This standard is generally measured by the size of annual revenues or number of employees. It varies according to the industry the firm operates in, as categorized under the North American Industry Classification System (NAICS). In the case of a manufacturer of office furniture, for example, a firm must have fewer than 1,000 employees to be considered small.

Next, the firm must be at least 51% owned by a socially disadvantaged U.S. citizen. This group automatically includes African-Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans and Native Americans. This group also includes those who can show a social disadvantage because of coming from an environment isolated from mainstream American society.

Economic disadvantage also has to be shown. These requirements are straightforward. The owner has to have:

  • Personal net worth of $750,000 or less,
  • Average adjusted gross income for three years of $350,000 or less,
  • Assets of $6 million or less.

Small businesses can apply to participate in the 8(a) program online at the certify.SBA.gov site. Applicants have to include documentation of income, assets and net worth, as well as narratives describing how they have experienced social disadvantage.

The 8(a) certification is good for up to nine years. Participants have to submit annual updates to stay in the program.

Bottom Line

Business owner at work

The SBA 8(a) business development can provide socially and economically disadvantaged business owners with valuable assistance in securing contracts with the federal government. To qualify, small business owners have to show they are members of disadvantaged groups and also have access to limited financial resources. Those that meet the standard can bid on sole-source government contract setasides. They can also set up joint ventures with larger firms to give both companies access to setasides and get technical assistance and training.

Tips for Small Businesses

  • An experienced financial advisor can provide invaluable help when applying to participate in the 8(a) program. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • If you have employees you’ll need to be sure you’re withholding the correct amount for federal income taxes as well as Social Security and Medicare. A free paycheck calculator can help make short work of this essential bookkeeping chore.

Photo credit: ©iStock.com/monkeybusinessimages, ©iStock.com/stevecoleimages, ©iStock.com/yacobchuk

Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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