8a Certification – The Economic Disadvantage Narrative Explained

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.

Here is the link to the Federal Register Rule that goes into effect on August 24, 2016 regarding the Narrative Statement of Economic Disadvantage.

https://www.federalregister.gov/articles/2016/07/25/2016-16399/small-business-mentor-protg-programs

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.

When you apply for SBA 8(a) Certification, the individual who is claiming disadvantaged status must be able to provide a narrative statement of economic disadvantage as just one of the many items to be included in their 8(a) Application.

I have spoken to countless clients who typically think this is the hardest part of their 8(a) Application and dread having to come up with, recall and reflect on how their ability to compete has been impaired due to discriminatory practices against them due to their identification as a member of their SBA designated group.

HERE IS A QUICK GUIDE TO ASSIST YOU TO UNDERSTAND WHAT THE ECONOMIC DISADVANTAGE NARRATIVE IS

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WHAT IS THE ECONOMIC DISADVANTAGE NARRATIVE:

The Economic Disadvantage Narrative is a series of statements where you describe, in detail, your personal experiences stemming from actual or perceived prejudice or bias you have experienced. These experiences must have been occurred in American Society.

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THE SIX AREAS:

There are six areas that the SBA requires that you consider when providing experiences of actual or perceived prejudice or bias that have affected your business life are:

1 – Bonding

2 – Credit or Financing

3 – Licenses

4 – Leases

5 -Market Restrictions

6 – Underemployment/Unemployment

Note – Some of these areas may or may not apply to your business life. If they do not, skip to the next area. Remember these important facts about what you are about to describe, (1) you must be able to describe at least one major negative experience to convince the SBA that you have subjected to unfair economic disadvantage, and (2), connect it back to your distinguishing feature, whether it is race, gender, ethnicity, handicap or culture.

The SBA will not accept the justification that you have been discriminated against because you are a small business and “can’t compete with the big guys” or your credit was not good enough to get a loan or line of credit.

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SOME QUESTIONS TO ASK YOURSELF WITHIN THE SIX AREAS:

Bonding:

1. Have you or your company ever been denied a performance or any other type of bond needed to acquire or perform your work?

2. Was the level of bonding that you have received less favorable in amount and terms than that of other similar companies who are not socially disadvantaged?

Credit or Financing:

1. Have you or your company ever been denied the required credit or financing needed to acquire necessary equipment, etc. or to finance the ongoing operations of your firm?

2. Were the terms (e.g. interest rate, collateral, etc.) of this financing less favorable than those received by similar companies who are not socially disadvantaged?

Licenses:

1. Have you or your company ever been denied a license required by you to conduct business?

2. Have you or your firm ever had a necessary license revoked?

Leases:

1. Has your firm ever been denied a real or tangible property lease?

2. Were the terms of your leases less favorable than those received by similar companies who are not socially disadvantaged?

Market Restrictions:

1. Have you or your firm ever been denied access to a client or to bidding on a contract opportunity?

2. Has your firm ever been rejected for a business opportunity on terms that were different than those provided to other similar firms that were not socially disadvantaged?

Underemployment/Unemployment:

1. Have you ever been denied employment or advancement opportunities that have had a negative impact on your economic situation?

2. Have you ever been discharged, fired or downsized on terms that were different than those provided to other equivalently qualified individuals?

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If you answered YES to any of the questions above or have ever experienced any other form of perceived prejudice or bias in the areas above you will need to answer the questions below:

What were the dates or periods of time over which the above prejudice or bias occurred? (You must be as specific as possible (e.g. January, 2013, January through March, 2010, Fall of 2008, etc.)

Who are or were the person(s) and/or entities (i.e., organizations) involved and their respective positions or titles (You must be as specific as possible (e.g. first and last name, title, name of company. If you cannot remember exactly, please provide as much information as possible and state to the best of your recollection. Do not make up any names.)

Identify and describe the specific instances that you claim represent the substantial and chronic prejudice or bias you have identified above? Be very specific, using the “street language” that may have been used.

What specific actions are being taken or were taken by you to overcome the effects of the prejudice or bias experienced by you or your company? (e.g. filed lawsuit, threatened lawsuit, wrote letter/email requesting reasoning, etc.)

Identify and discuss the specific negative impact (economic, loss of professional development, damage to your personal or company reputation) on you and/or your firm on the entry or advancement in the business world because of this disadvantage experienced by you. (You must be as specific as possible, e.g.  the loss of revenue, profits or salary in actual dollar amounts.)

What type of physical evidence will you or can you provide to substantiate your claims of prejudice or bias? e.g. court or administrative findings, affidavits, documents related to rejected bonding, contemporaneous records memorializing meetings, conversations, negotiations, telephone calls,  a letter or two from a co-worker that observed the above incident)

What additional facts do you consider relevant to claiming and/or evidencing the prejudice or bias that you claim? (For example, were there other incidents involving others who may have been subjected to the same types of prejudice or bias as you, if so, be specific about the name of the company, individuals, titles, dates, things said/done, minority/non-minority, etc

For more information on the SBA 8(a) Program, visit cloveer.com or call 813-333-5800. Over 2,000 successful 8(a) Applications .

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 = Personal Assets – Personal 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 only split assets and liabilities 50/50 if 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 Adjusted Net Worth Calculator.

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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.

8a Certification Advantages

8a certification is a valuable marketing vehicle for socially and economically disadvantaged small businesses to access the federal government marketplace. Initially, contracting under the 8a Program may seem more difficult than other methods. However, it is no more complicated than contracting under full and open competition through the sealed bid procurement process and it presents many advantages for both the government and the 8a contractor.

Advantages to the Government

A big advantage for government procurement personnel in selecting the 8a contracting method is that the agency does not have to solicit bids and may choose a specific 8a contractor to fulfill its requirements. For sole-source requirements under the competitive thresholds, the contracting agency can identify the 8a company to perform a contract by simply naming that company in an offering letter to the SBA. Of course this does not happen by itself. The 8a firm must actively self-market with the contracting agency or be introduced to the contractor through a referral. For competitive 8a requirements, the contracting agency does not have the same ability to choose a contractor, although the competition can be limited to eligible 8a companies within a certain geographic area or participation stage.

Another advantage for the government is that they can often get what they need faster by contracting though the 8a Program. This is because competitive requirements must be synopsized in FedBizOpps and the resulting solicitation must be open on the street for a minimum of 30 days. This process for full and open competition can take several months. 8a contracts have no synopsis requirements (except for competitive 8a contracts) and contracting agencies are not required to allow 8a firms 30 days to respond to the solicitation. Therefore 8a contracts can be finalized much faster.

Advantages to the 8a Contractor

The advantages to an 8a company are great. An 8a company can obtain federal contracts on a sole-source or limited competition basis much faster than in a full and open competition. For many small businesses, the costs of preparing proposals are very prohibitive. If the contract is a sole source, the 8a firm does not have to endure the costs associated with preparing a competitive proposal and participating in subsequent rounds of discussions with the contracting agency’s contracting officer.

Once the buying agencies are aware of the advantages of the 8a process and have a good experience with your 8a firm, they will most likely prefer to extend future contracts to you. The SBA plays a role in the beginning of the contracting process by verifying and approving the requirement for the 8a company. Once the requirement is in place, the 8a company and the federal agency deal directly with each other during negotiation of the contract and during performance of the contract.

Looking for help with Getting 8a Certified?

For 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.

A list of supporting documentation that must be submitted with your 8a Application

Here is a typical list of supporting documents that will need to be included within your 8(a) application:

  • Evidence of concerns registration in SAM (System for Award Management) and DSBS (Dynamic Small Business Search) systems
  • Personal federal tax returns for the last three filing years
  • Company federal tax returns for the last three filing years
  • A company balance sheet and income statement no older than 90 days and for the last three completed years
  • Personal resume
  • List of current and past federal and non-federal contracts and invoices within the last two completed fiscal years
  • Letters of reference from current and/or past clients
  • Current certificate of good standing
  • Stock certificates/Stock ledger (Corp)
  • Articles of Incorporation/Organization/Partnership Agreement including any foreign filings
  • Bylaws or Operating Agreements
  • Meeting minutes (Corp and LLC)
  • Buy/Sell or Voting Agreements
  • DBA or Fictitious Business Name Filing
  • Organization chart
  • Business bank signature card
  • business and special licenses
  • Business loan agreements
  • Brief history of the business
  • Lease agreements for business
  • Business insurance
  • Personal financial statement supporting statements (Checking, Savings, IRA w/terms, etc..)
  • Proof of Citizenship
  • Trust Agreements
  • Statement of Bonding Limit
  • Letter of No Objection

Keep in mind that each 8(a) Application is unique and document requirements vary based upon the entity type and number of applicants.

8a Certification: How to determine if your AGI is below the $250,000 threshold.

The $250,000 Threshold for Adjusted Gross Income (AGI)

Among the many 8(a) business development program eligibility requirements, the applicant for 8(a) Certification must have an average AGI over the past three taxes years of less than $250,000.

What is the definition of Adjusted Gross Income?

Adjusted gross income (AGI) is a tax term for an amount used in the calculation of an individual’s income tax liability. AGI is calculated by taking the applicants  gross income and subtracting their maximum allowable adjustments. AGI is the last number on the first page of the Form 1040.

How do I determine my Adjusted Gross Income for 8(a) Certification Purposes?

The easiest way to initially determine if you exceed the $250,000 threshold, averaged over the last three years is to add up the AGI number reported on the first page of your last three years of federal tax returns. If you add these three numbers, divide them by three and result in a number larger than $250,000 you must do further analysis. If the number is less than $250,000 you do not exceed the threshold regardless of what is discussed below.

If your resulting calculation shows more than $250,000, and you are a married, filing the taxes jointly, you should then separate the portion of any income reported on the tax return between the applicant and their spouse (e.g Line 7 (1040). Wages, salaries, tips, etc = $100,000 (Applicant’s portion, $40,000 –  Spouse’s portion, $60,000). Once you have separated out all of the income reported on the tax return between the applicant and their spouse again take the total for the last three years and divide them by three. If the resulting number is still larger than $2500,000 you must do further analysis. If the number is less than $250,000 you do not exceed the threshold regardless of what is discussed below.

One final analysis can be performed to see if you still exceed the $250,000 threshold. If the applicant business concern is an LLC or S-Corporation you may:

1. Deduct any income associated with the business concern that was reinvested into the business concern, less any distributions.

2. Deduct any income used to pay the LLC or S-Corporation Federal taxes within 12 months of the distribution of income.

Determining your AGI can be somewhat complex for 8(a) Certification purposes. Cloveer can help you to determine your AGI should you need further assistance. Please visit our website at www.cloveer.com for more information on 8(a), HUBZone and 8(m) Certification.

2 options to get your 8a application certified in the least amount of time possible

Option 28a Application Review  – $1,750.00

  • For those who wish to complete the application on their own we offer an 8a Application Review service.  Here, one of our 8a program experts will review your entire application, checking it for missing documents and potential eligibility issues.  We will then advise you as to how best to modify your application to ensure it will be approved an SBA reviewer.

Option 38a Application Completion Service – $3,800.00

  • The majority of our clients however, prefer a little more of a hands-on approach.  They recognize the expertise we have accumulated in the over 12 years we’ve been assisting clients obtain 8a certification, and want us to put it to use for them.  If you opt for our 8a Application Completion Service, we will work one-on-one with you to ensure that your 8a Application is 100% complete and compliant so the SBA can review and accept it the first time.

With 14 years and over 2,000 successful applications under our belt, we can assure you that no matter which option you choose, Cloveer will work harder and faster to get your business SBA 8a certified.  Contact us today to discover what Cloveer can do for you.

Special Licenses Requirements within the SBA 8a Application

If any special licenses are required for the industry in which the business concern operates, such as a General Contractors license, Professional Engineers (PE) license, Plumbing license, etc. has a copy been provided?

Is the license current and in the name of the business concern with the Applicant for 8a Certification as the holder/qualifier?

If the license holder/qualifier is not the Applicant, is the license holder/qualifier an equity owner within the business concern? If so, the SBA will determine that this individual has the ability to impact the control of the business concern, therefore the business concerns 8a Application will most likely be denied.

If the license holder/qualifier is the Applicant, and the license holder/qualifier has NO equity with the business concern, the Applicant and business concern must be able to prove that they have ultimate managerial and supervisory control of this individual.