Your business must possess reasonable prospects for success competing in the private sector if admitted to the 8(a) program.
To do so, it must be in business in its primary industry classification (NAICS code) for at least two full years (24 months) immediately prior to the date of its 8(a) application and be able to provide business tax returns for each of the two most previous tax years that show sufficient operating revenues earned within the primary industry (NAICS code) in which the applicant is seeking 8(a) certification for.
The SBA may waive the two years in business requirement if each of the following five conditions can be met:
Condition 1: The individual or individuals upon whom eligibility is based have substantial business management experience.
- Provide resumes for the 8(a) Applicant(s) showing past employment history that exhibit significant management experience such as:
- Being previously employed performing management duties (CEO, VP, CFO, President, Director).
- Showing you successfully operated a similar business concern in the past and/or managing projects and employees to at least the equivalent size of the contracts and number of employees that the applicant business is working on currently.
- In addition, the applicant and other key individuals of the business concern must also have the required technical capabilities, if required in your business situation. The applicant must hold all requisite licenses (Contractors, Professional Engineer, Accountant, etc.) and professional certifications within firms who have been in business for less than two years.
- If you only have 1-3 years of business management experience you may not meet the substantial business management experience required by the SBA.
Condition 2: The applicant has demonstrated technical experience to carry out its business plan with a substantial likelihood for success if admitted to the 8(a) program.
- Provide evidence of a business plan or some semblance of a business plan that:
- Details your Marketing/Sales, Products/Services, Management/Organizational/Personnel and Finance goals and demonstrated progress towards the goals you specified.
- Outlines any unique or special technical expertise that you and your team have and how you believe it will sustain your business during its early formative years.
- Provide copies of independent reference letters from your active and completed clients, directly addressed to the applicant, that establish successful contract performance.
Condition 3: The applicant has adequate capital to sustain the operations and carry out its business plan as a participant.
- Your business must have sufficient working capital available. Sufficient working capital is generally defined as a minimum of 3 months’ worth of working capital immediately available to your business.
- Provide your most recent business bank account (s) statements that support that you have 3 times your monthly burn rate.
- In lieu of cash in your business bank account, a business line of credit may be substituted. In this case, you will need to provide a copy of the business line of credit documents and a current statement showing the availability of enough working capital.
- You should also describe your general payment terms and what actions your business takes to expedite the timely collection of receivables including how fast you typically receive payments from invoices.
Condition 4: The applicant has a record of successful performance on contracts from governmental or nongovernmental sources in its primary industry category.
- Provide at least one business tax return showing approximately $100,000 to $150,000 in gross receipts. The business tax return provided must be the most recently filed year with the IRS (2020). If your most recently filed business tax return (2020) shows none or less than $100,000 you will most likely not be able to seek a waiver.
- Be able to display to the SBA that your business is not economically dependent on one client for more than 70% of your revenues from its inception. This means that your breakdown of contracts must show you are earning revenues from multiple entities, within the primary NAICS code you are seeking 8(a) Certification for and show that not more than 70% of the total revenue earned was with one single entity. This presumption may be rebutted by a showing that despite the contractual relations with another concern, the concern at issue is not solely dependent on that other concern, such as where the concern has been in business for a short amount of time and has only been able to secure a limited number of contracts or where the contractual relations do not restrict the concern in question from selling the same type of products or services to another purchaser.
The 70% rule does not apply if your direct billable client is a federal, state or local government agency.
- Provide copies of all paid invoices and bank statements showing the depositing of all revenue earned that matches the business financial statements provided to the SBA.
- If you have a potential federal client that may want to procure your products or services, should you become 8(a) certified, you should attempt to obtain and provide noncommittal letters of reference as additional evidence.
- In addition, the SBA may require proof that the government previously procured and is likely to procure the types of products or services offered by your business. Proof can be provided in the form of SAM.GOV printouts of previous 8(a) procurement’s that have occurred and are similar in nature to your products or services offered by your business.
Condition 5: The applicant has, or can demonstrate its ability to timely obtain, the personnel, facilities, equipment, and any other requirements needed to perform contracts as a Participant.
- You must have all required personnel needed for your current contract requirements. You should detail the current number of employees you have, any future hiring of personnel required and how you will recruit and attract additional employees including timelines for hiring and any special relationship that exist with recruiters, personnel agencies and temporary agencies. You must also be able to show the SBA that you meet the 8(a) subcontracting requirements. See CFR §125.6 for what are the prime contractor’s limitations on subcontracting for the specific percentages.
- For facilities requirements you should detail your current office space, any future locations or expansions, how you will lease or purchase new office space including any relationships that exist with local commercial real estate brokers.
- For equipment requirements you should detail your current equipment owned or leased that is needed to perform on contracts, any future equipment needed along with where you will lease or purchase and how you will finance or lease the equipment needed.
- If bonding is required, you will need to provide a letter from your surety company stating your single and aggregate amount of bonding available.
Cloveer offers a 8(a) Length of Time (Two Year) Waiver Guide and Sample for sale and immediate download through our site for $150.00. Our two year waiver guide and sample explains and shows you how to properly address all five (5) required areas.