Category Archives: adjusted net worth

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8a Program Eligibility – The $250,000 Adjusted Net Worth Requirement

Among the many 8a business development program eligibility requirements, the applicant for 8a Certification must have a personal adjusted net worth of less than $250,000 at the time of 8a Application Submission.

What is the definition of Adjusted Net Worth?

The algorithm used to determine Adjusted Net Worth for 8a Certification purposes is:

Adjusted Net Worth = Assets – Liabilities – [Equity in primary residence + value of ownership interest in applicant business + value of any IRA/401(k) or other retirement account that is subject to a penalty for early withdrawal]

If  the applicant is married and the asset or liability is jointly held, you split the value 50/50. If the applicant is married and lives in a community property state, you split all assets and liabilities 50/50 unless you have a transmutation or pre/post nuptial agreement that states otherwise.

How can I determine my Adjusted Worth?

You can easily determine your Adjusted Net Worth by using our online calculator.

What is required to be submitted within the 8a Application to prove the applicant’s Adjusted Net Worth?

Each applicant, and their spouse, must submit a separate SBA Form 413, Personal Financial Statement. Along with the SBA Form 413 you must also submit statements for each asset or liability supporting the amounts reported. These statements cannot be any older than 30 days at the time of 8a Application submission.

Are there any ways to reduce an applicant’s Adjusted Net Worth below the $250,000 threshold?

For more information, contact us.

*Important* You cannot transfer an asset out of the applicant’s name within two years of the time your apply for 8a Certification for less than fair market value. Doing so will result in the full amount of the asset being re attributed back to the applicant.

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15 8(a) Application Killers

Spending the time upfront to ensure that your firm meets all of the eligibility requirements for 8(a) Certification can save you countless hours of frustration, the expense of putting the application together incorrectly and the difference between obtaining formal 8(a) Certification or not.

Below are just 15 of the 8(a) Application “Killers”. These will immediately tell you whether you have an issue that may prevent you from qualifying for 8(a) Certification.

1. The applicant (51% of more owner) must be a US Citizen when they apply.

2. The applicant must devote full time to the business concern that is applying for 8(a) Certification when they apply. This means the applicant must work at least 40 hours per week in the business concern without any outside employment.

3. The applicant must hold the highest management position within the business concern. Generally this is the CEO, President or Managing Member.

4. The applicant must be able to demonstrate that they are the highest compensated. Generally the SBA will deny your 8a application if you cannot demonstrate the applicant currently is the highest compensated or there is a very good reason why they have elected not to be.

5 The applicant must have an adjusted net worth of less than $250,000 at the time they apply. Adjusted net worth = Personal Assets – Personal liabilities – (Equity in primary residence + value of ownership interest in business concern + IRA/401(k) or Other Retirement Accounts subject to a penalty for early withdrawal). To determine if your adjusted net worth is lower than $250,000 use our adjusted net worth calculator.

6. The applicant’s AGI (Adjusted Gross Income) cannot be more than $250,000 averaged over the last three tax years.

7. The applicant must generally hold all licenses or professional certifications required to operate the business concern. If they do not, another equity owner cannot be the holder of the required licenses.

8. If the applicant has ownership in another business concern, other than the business concern that is applying for 8(a) Certification, the SBA may very well likely determine that you do not devote full time and therefore deny your 8(a) application. The only exception would be for ownership in an LLC for holding, managing and protecting real estate. There are ways to solve this issue and they vary depending on your unique condition.

9. The applicant cannot be on probation or parole. If the applicant has been arrested in the past it does not automatically deny them unless they were convicted of a specific crime. Having an arrest, regardless of how long ago, will severely delay the review of your 8a Application by atleast 90 days.

10. The business concern must have been in business for 2 full years with eavidence of reasonable revenues on its last two tax returns in the industry it is seeking 8(a) Certification for.  If it has not, you must seek a waiver and meet the 5 conditions set by the SBA to overcome this condition. Click here for detailed information on each of the 5 conditions.

11. The business concern and the applicant cannot have any delinquent tax filings or have any unpaid Federal, State or local obligations at the time of application. This condition can be overcome by filing the proper extension for delinquent taxes or by providing evidence of a current re-payment arrangement for unpaid Federal, State or local obligations.

12. The business concern must be at least 51% directly owned by the applicant and must be defined as a “Small Business” by the Federal Government. Your primary NAICS code, gross sales and sometimes the number of employees define your size standard that the SBA will base its determination on.. The business concern must also be a for-profit business and cannot be classified as a broker or be a subsidiary of another business concern.

13. The business concern’s current financial statements must exhibit positive net income, positive net equity and sufficient working capital at the time of 8(a) application submission.

14. The business concern must not earn more than 70% of its total revenue with one single client, within the last 12 months. This does not apply to a business concern if its direct billing client is a Federal or State Government.

15. The applicant or business concern cannot have previously participated as an 8(a) participant. The applicant cannot have any immediate family members who are current or previous participants in the 8(a) Program that are or were affiliated.

These are just 15 of the “Killers” that can potentially prevent your 8(a) Certification application from being successful. There are additional “Killers” and other areas that you should be concerned with prior to making the decision on whether you fully qualify for 8(a) Certification. If you have additional questions or would like to discuss your specific business situation, please call us at 813-333-5800 or visit www.cloveer.com.

Cloveer, Inc. pre-qualifies all of its full service clients prior to preparing their 8(a Certification Application. With over 1,600 successful clients to date. Read some of our testimonials.

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2 ways to reduce your Adjusted Net Worth below $250,000.

Is your Adjusted Net Worth (Adjusted Net Worth = Personal Assets – Liabilities – [Equity in primary residence + ownership interest in business + IRA/Other Retirement Accounts subject to a penalty for early withdrawal] ) above the $250,000 SBA regulatory threshold limiting your participation in the SBA 8(a) Program?

Not sure what your true Adjusted Net Worth is? Use the Cloveer online adjusted net worth calculator to determine it.

If your Adjusted Net Worth is above the regulatory limit, here are 2(two) possible ways to reduce your Adjusted Net Worth without violating the SBA regulations.

1. Pay down your primary mortgage or HELOC (Home Equity Line of Credit) from your personal checking, savings, stocks or mutual funds. Since the value of your primary residence, mortgage and HELOC do not factor into determining your Adjusted Net Worth, paying down your primary mortgage or HELOC can help reduce your Adjusted Net Worth.

2. Invest funds from your checking, Savings, Stocks or Mutual Funds into the business. You may be allowed to infuse personal funds into the business if your firm meets certain requirements. To determine whether this will be allowable in your unique case, an RMA (Risk Management Association) analysis must be performed.

We can perform an RMA analysis to see whether or not the SBA would allow you to infuse personal funds into additional Paid-In Capital. This may help drive down your Adjusted Net Worth to below the regulatory limit of $250,000.00. The keyword is “Allow”. The SBA will allow you to infuse additional funds into the business concern if it is found to be economically disadvantaged, by SBA Standards, at the time of the infusion of Additional Paid in Capital. In order for the SBA to determine that the business concern is  found to be economically disadvantaged it utilizes data from the firm Risk Management Association (RMA) and its compiled figures/ratios to see if your firm exceeds 4 or more of the 7 figures/ratios to be discussed below. These figures/ratios compiled from RMA basically allow the SBA to compare your firm to other similar firms which are operating within the same NAICS code and also are within the same sales range (e.g. 0-1MM)  against the following 7 figures/ratios:

1. Total Assets

2. Current Ratio (Current Assets/Current Liabilities)

3. Debt/Net Worth Ratio

4. Net Worth

5. Net Sales

6. Pre-Tax Profit

7. Sales/Working Capital Ratio

For more ways to reduce your Adjusted Net Worth or if you have questions about the SBA 8(a) Program, please call us at 813-333-5800 or visit www.cloveer.com.

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SBA 8(a) Certification Requirements

Though there is much more to 8a certification than meeting a few simple criteria, there are in fact some basic requirements that must be met to consider applying. If you are ready to begin the 8a application process, you will need to organize a lot of information. We at Cloveer know this can be daunting, so we’ve compiled an 8a certification checklist to help you make sure you’re on the right track. Take a look at this 8a checklist to see if you meet the basic eligibility requirements to qualify to apply for the 8a certification.

  • Are you a U.S. citizen?
  • Do you work full-time in the business without any outside employment?
  • Do you hold the top management position of the business?
  • Are you the highest compensated individual within the business?
  • Do you have an adjusted net worth of less than $250,000?
  • Did you as the applicant make less than $250,000 averaged over the last three tax years?
  • If licenses are required to operate your business, do you hold them?
  • Are you not currently on probation or parole, if you have ever been arrested?
  • Has the business been operating with revenues for 2 full years as shown on its last two tax returns?
  • Have you or your business satisfied any unpaid, federal, state or local obligations?
  • Do you own at least 51% of the business which is applying?
  • Does the business that is applying exhibit potential for success?
  • Does the business earn 70% of its revenue from more than one client?
  • Would you be a first time participant in the SBA 8a program?
  • Do you own a small business?

If you answered “Yes” to each of the questions on the above 8a certification checklist, congratulations; you meet the basic requirements for 8a qualification. The next step in your 8a application is compiling your actual application documentation. As there is quite a bit of paperwork involved in this part of the application, we have developed an 8a Application Accelerator to help speed the process, and make sure you have everything you need.

8a Application Accelerator

For our clients who are comfortable navigating the SBA 8a application process with a little less help than most, we have conceived an easy-to-use 8a Application Accelerator. As the nation’s #1 selling 8a application completion tool, we guarantee that no other program makes the process faster or easier. This interactive, web-based program takes you step-by-step through the creation and compilation of all the documentation necessary to submit your SBA 8a certification application. Moreover, the tool shows you how to organize your 8a application in the preferred SBA format. Every item and area within your 8a application will be identified and separated using our proven method, so your SBA reviewer can find, review and approve your SBA 8a application fast.

Other Services

For our clients who are too busy running their businesses to complete the application themselves, we understand you don’t have time to look over the 8a checklist and that you would rather have a group of trusted 8a program experts more involved in your application. Cloveer offers other services including an 8a Application Review, and for those who would like their entire 8a application completed and approved in record time, a full 8a Application Completion Service.

No matter which option you choose, Cloveer guarantees that no other company will work harder or faster to assist you in getting your business SBA 8a certified. We have been assisting clients to obtain their 8a certification and maintain their 8a program eligibility for over 10 years. As such, we know the SBA 8a program regulatory requirements, 8a standard operating procedures and Office of Hearings and Appeal cases that affect the 8a program better than 99.9% of anyone else out there.

At Cloveer, we believe in treating you the way we want to be treated. We go the extra mile to make sure your experience with our company is outstanding. Contact us today to discover what Cloveer can do for you.

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Do you meet the SBA 8(a) Program Economic Disadvantage Qualifications?

Do you meet the SBA 8(a) Program Economic Disadvantage Qualifications?

One of the many requirements to become SBA 8a Certified is to be deemed to be economically disadvantaged at the time of your 8a Application submission. In order to meet this requirement you must:

1. The applicant(s) for 8a Certification  must have an adjusted net worth of less than $250,000 at the time of their application submission.

Adjusted Net Worth = Personal Assets – Liabilities – [Equity in primary residence + ownership interest in business + IRA/Other Retirement Accounts subject to a penalty for early withdrawal]. All assets jointly held are split 50/50. If you are unsure what you Adjusted Net Worth is, use the Cloveer Adjusted Net Worth Calculator  to determine if you are below the $250K limit. The online calculator offers specific advice and tips on determining some of the required amounts that must be  reported to the SBA.

Tip: You will be required to submit supporting statements for all assets and liabilities so make sure that you provide amounts that can be corroborated by the SBA.

There  may be ways to reduce your adjusted net worth below the regulatory limit.  Please contact us for specific advice on your situation.

2. The applicant(s) for 8a Certification cannot have more than $4,000,000 in total assets at the time of their application submission.

Total Assets = All Personal assets – IRA/Other Retirement Accounts subject to a penalty for early withdrawal.

3. The applicant(s) for 8a Certification cannot have an Adjusted Gross Income (AGI) of more than $250,000, averaged over the last three tax years.

AGI = Your total income – any federal taxes you paid on behalf of the corporation or LLC (from distributions taken) – any income attributed to your corporation or LLC  that is not distributed to you and essentially re-invested in the corporation or LLC.

If you are unsure if you meet this eligibility requirement, please contact us for a detailed review.

4. The applicant(s) for 8a Certification must be able to produce a narrative statement of economic disadvantage that details at least one specific instance of actual or perceived prejudice or bias that can be directly attributed back to their distinguishing feature (Race, Ethnicity, Culture, Handicap, Gender, etc).

View our sample economic and social narratives of disadvantage. They are actual narratives that have been approved by the SBA. The names have been changed to protect the identity of the individuals but will give you a good idea of the level of specificity that must be provided with your narrative.

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Who is Now Economically Disadvantaged – New SBA 8a Rules

The SBA made many changes to the 8(a) Program rules and regulations on 2/11/2011 that become effective on 3/14/2011. Below is the final rule changes for CFR  § 124.104 Who is economically disadvantaged?. For a complete copy of all changes, download the final rule. 

§ 124.104 Who is economically disadvantaged?

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(b) * * * 

(2) When married, an individual claiming economic disadvantage must submit separate financial information for his or her spouse, unless the individual and the spouse are legally separated. SBA will consider a spouse’s financial situation in determining an individual’s access to credit and capital where the spouse has a role in the business (e.g., an officer, employee or director) or has lent money to, provided credit support to, or guaranteed a loan of the business. SBA does not take into consideration community property laws when determining economic disadvantage.

(c) Factors to be considered. In considering diminished capital and credit opportunities, SBA will examine factors relating to the personal financial condition of any individual claiming disadvantaged status, including income for the past three years (including bonuses and the value of company stock received in lieu of cash), personal net worth, and the fair market value of all assets, whether encumbered or not. An individual who exceeds any one of the thresholds set forth in this paragraph for personal income, net worth or total assets will generally be deemed to have access to credit and capital and not economically disadvantaged.

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(2) * * * 

(ii) Funds invested in an Individual Retirement Account (IRA) or other official retirement account that are unavailable to an individual until retirement age without a significant penalty will not be considered in determining an individual’s net worth.

In order to properly assess whether funds invested in a retirement account may be excluded from an individual’s net worth, the individual must provide information about the terms and restrictions of the account to SBA and certify that the retirement account is legitimate. 

(iii) Income received from an applicant or Participant that is an S corporation, limited liability company (LLC) or partnership will be excluded from an individual’s net worth where the applicant or Participant provides documentary evidence demonstrating

that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses from the S corporation, LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be used to reduce an individual’s net worth. 

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(3) Personal income for the past three years. (i) If an individual’s adjusted gross income averaged over the three years preceding submission of the 8(a) application exceeds $250,000, SBA will presume that such individual is not economically disadvantaged. For continued 8(a) BD eligibility, SBA will presume that an individual is not economically disadvantaged if his or her adjusted gross income averaged over the three preceding years exceeds $350,000.The presumption may be rebutted by a showing that this income level was unusual and not likely to occur in the future, that losses commensurate with and directly related to the earnings were suffered, or by evidence that the income is not indicative of lack of economic disadvantage. 

(ii) Income received from an applicant or Participant that is an S corporation, LLC or partnership will be excluded from an individual’s income where the applicant or Participant provides documentary evidence demonstrating that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses from the S corporation, LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be used to reduce an individual’s personal income. 

(4) Fair market value of all assets. An individual will generally not be considered economically disadvantaged if the fair market value of all his or her assets (including his or her primary residence and the value of the applicant/Participant firm) exceeds $4 million for an applicant concern and $6 million for continued 8(a) BD eligibility. The only assets excluded from this determination are funds excluded under paragraph (c)(2)(ii) of this section as being invested in a qualified IRA account.