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).
Updated (August 29, 2016). As of August 24, 2016 you are no longer required to prepare and provide a Narrative Statement of Economic Disadvantage to the SBA as part of your 8(a) Application. If you are not a member of one of the SBA designated groups, you still must submit a Social Disadvantage Narrative though
Here is the link to the Federal Register Rule that goes into effect on August 24, 2016 regarding the Narrative Statement of Economic Disadvantage.
Specifically, within it under item: 8(a) BD Application Processing (13 CFR 124.202, 124.203, 124.104(b), and 124.108(a))
In addition, SBA’s regulations provide that each individual claiming economic disadvantage must describe such economic disadvantage in a narrative statement, and must submit personal financial information to SBA. SBA believes that the written narrative on economic disadvantage is an unnecessary burden imposed on applicants to the 8(a) BD program. SBA’s determination as to whether an individual qualifies as economically disadvantaged is based solely on an analysis of objective financial data relating to the individual’s net worth, income and total assets. As such, this final rule eliminates the requirement that each individual claiming economic disadvantage must submit a narrative statement in support of his or her claim of economic disadvantage.
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.