How does the SBA determine if an 8a applicant business concern is defined as a Small Business?

The 8a applicant business concern must define their primary North American Industry Classification System (NAICS) code with the 8a Application paperwork. The primary NAICS code is the six digit code in which the business concern earned its largest segment of annual receipts or total income, in the most recently completed fiscal or taxable year.

For example, a business concern that earned its largest segment of total income engaged in commercial or institutional building construction would have a primary NAICS code of 236220.

To begin determining if the business concern is defined as a Small Business, the SBA will lookup the size standard for the NAICS code.

For example, the size standard threshold for NAICS code 236220 is $33.5M.

The SBA will then add the amounts reported on the business concerns “Gross Receipts or Sales” line of their business tax return for the last three taxable years and determine its three year total income.

Finally, the SBA will take the three year total income and divide this amount by three to determine its three year average total income.  The three year average income amount is the amount used to determine if the business concern is below the size standard threshold for their primary NAICS code.

In our example, if the business concern’s three year average income is less than $33.5M, the business concern will be classified by the SBA as a “Small Business”.

*Important*

When the SBA examines the size of the business concern they will look for any possible issues involving affiliation. Affiliation arises when the business concern controls another firm or another firm controls the business concern. It can also arise when one individual has the power to control both the business concern and another firm (e.g. this individual owns more than one firm) or there are identical or substantially identical business or economic interests, such as family members, persons with common investments or firms that are economically dependent through contractual or other relationships. The SBA will also consider ownership, management, previous relationships with or ties to another firm, and contractual relationships in determining whether affiliation exists.

If you suspect that you may possibly have an affiliation with another firm, contact Cloveer for further assistance.

How does the SBA review the Individual Tax returns during the 8a Application review process?

The SBA will verify the following:

a. Have you provided complete copies of the personal Federal tax returns for the last two years from all required individuals. Federal tax returns are required from each 8a applicant and each officer, director, partner, member and anyone who holds more than 10% ownership interest in the business concern.

DO NOT SUBMIT COPIES OF THE INDIVIDUALS STATE TAX RETURNS

b. If any of these Individuals are married and have filed taxes separately, have you submitted the personal tax returns for each spouse?

c. Have you included all W-2 forms and do they add up to the wages reported on the personal tax returns?

d. Have all schedules and attachments indentified been included?

e. Do the 8a applicant’s tax returns verify that they devote full-time to the 8a applicant business concern?

If not, has the 8a applicant provided a letter from each past employer indicating their last date of employment?

f. Does the 8a applicant’s tax return show that he or she is the highest compensated individual within the business concern?

If not, has proof been included that verifies that the 8a applicant is the highest compensated individual?

g. Have all tax returns been signed?

h. Have you included copies of the cancelled check, bank statement or IRS account balance transcript to show payment for all amounts indicated on the “Amount you Owe” line of the tax return?

View the related article on  “How does the SBA review the business concern’s tax returns during the 8a Application review process?”

 

What is the impact of an Arrest Record on an 8a Application?

What is the impact of an Arrest Record on an 8a Application?

Any individual who has an arrest record must indicate this on their SBA Form 912 within the 8a Application.

What is the impact:

The impact of an arrest record can be a denial of the participants 8a Application or a delay in its processing.

If the individual is currently on parole, probation or has been convicted of a major crime  (for example, rape, child molestation, murder, tax evasion, financial fraud, etc.) there is a high likelihood that the 8a Application will be denied for failing to meet the SBA’s Good Character requirement.

If the individual has an arrest record, is not on parole, probation or has not been convicted of a major crime the SBA will freeze the 90 day 8a application processing clock. A copy of the individuals SBA Form 912 and completed fingerprint card is subsequently forwarded to the FBI for review. A delay in the processing and determination in the amount of 3-6 months is not out the question when there is an arrest indicated within an 8a Application.

What must be provided to the SBA:

The individual who has identified an arrest record must:

a. Submit a completed SBA specific FD-258 Fingerprint Card. An SBA specific FD-258 may be obtained from your local SBA district office. The card provided cannot have any holes, staples, additional marking or any alterations and must be completed in black ink.

It is the individuals responsibility to go to local law enforcement agencies to obtain legible fingerprints.

b. Provide details of the arrest (i.e., fines paid, jail time, probation served)

c. Include copies of all court disposition papers

If you have additional questions or concerns, please contact cloveer for more information.

How to write an Executive Summary for your 8a Business Plan

The Executive Summary is the most important section of your 8a business plan. It provides a concise overview of the entire plan along with a history of your company. This section describes the fundamental elements of your business, as well as what business you are in, why you are in it, and what you hope to accomplish. For example, describe your business in terms of where it has come from, where it is now, where you want it to go, and how you plan to get it there.  This section is important because it explains why you think your business idea will be successful.  This is a complete summary of your 8a business plan and should be the last section you write. After you’ve completed all the other details of your plan, you’ll be better able to summarize it.  1 to 2 pages is an appropriate length for the executive summary.

Here are some important elements to include in your Executive Summary:

  • The Mission Statement – The mission statement briefly explains the thrust of your business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.
  • Date business began
  • Names of founders and the functions they perform
  • Number of employees
  • Location of business including branches or subsidiaries
  • Description of plant or facilities
  • Primary industry and NAICS code
  • Products manufactured/services rendered
  • Summary of company growth since the beginning, including financial or market highlights
  • Summary of future plans

With the exception of the mission statement, all of the information in the Executive Summary should be brief since the details will be provided further along in the plan.

For newly certified 8a companies, Cloveer provides professional assistance in preparing SBA acceptable 8a Business Plans.

What is an 8a Participation Agreement?

Every company that becomes 8a Certified with the SBA must sign a participation agreement.  The agreement is the same for all companies and by signing it, you are agreeing to abide by the 8(a) BD regulations, 13 C.F.R. § 124, which can be found at http://www.access.gpo.gov/nara/cfr/waisidx_07/13cfr124_07.html.

In addition, you will be agreeing to submit financial statements and tax returns on an annual basis.  For companies with gross annual receipts between $1M and $5M the financials must be reviewed by an independent qualified public accountant.  For companies with gross annual receipts over $5M, the financials must be audited by an independent qualified public accountant.

The participation agreement also provides a list of 26 items that will cause termination from the program. Three examples of occurrences that can cause termination of your company from the 8a program are:

  1. Failure by the concern to obtain prior written approval from SBA for any changes in ownership, business structure, management, or control.  Hiring a key officer without prior approval is an example of this.
  2. Failure by the concern to obtain prior SBA approval of any management agreement, joint venture agreement or other agreement relative to the performance of a section 8(a) subcontract.
  3. Failure by the concern to provide SBA with Annual Update reports as required.

An actual Participation Agreement including the complete list of conditions and causes for termination is available for viewing.  For expert assistance with maintaining 8a program compliance and annual reporting requirements, contact Cloveer.

What meeting minutes must be submitted with your 8a Application and who is required to submit them?

What meeting minutes are required?

At a minimum, you must submit a copy of the business concerns initial or organizational meeting minutes and at least the last two immediate years of annual meeting minutes.

Typically the initial or organizational meeting minutes are prepared at the time you formally organize your business concern. The initial meeting minutes will usually contain the following information:

  • A listing of all business concern shareholders, owners or members
  • Elections of the initial Board of Directors, Managing Member or General/Limited Partners
  • Election of all business concern officers such as the President/CEO, Vice President, Secretary and Treasurer
  • Resolutions acknowledging the  filing of the Articles of Incorporation, Organization or Partnership filing
  • Resolutions accepting the original Bylaws, Operating Agreement or Partnership Agreement
  • Any other general business topics discussed such as opening business bank accounts, officer salaries, etc.

Your Bylaws, Operating Agreement or Partnership Agreement will generally outline the requirements for holding meetings.  Typically each year a meeting is held with the purpose of electing or re-electing the Board of Directors, Managing Members or General/Limited Partners and all officers.

Who is required to submit them?

All business concerns that are formed as a Corporation, Limited Liability Company or Partnership must submit the meeting minutes as part of their 8a Application. If you operate as a Sole Proprietorship, you are not required to be submit meeting minutes.

 

What financial statements are required to be submitted for an 8a application?

All firms applying for 8a Certification must submit the following financial statements:

Year to date Balance sheet and income statements, no older than 90 days, including a detailed A/P and A/R aging statement if you are operating on an accrual basis.

The last three years of Balance sheet and income statements (e.g. 2016, 2015, & 2014)

You should ensure that all financials provided are prepared on generally accepted accounting principles.

Your current year to date financials must exhibit the following:

  • Positive net income
  • Positive working capital
  • Positive equity

Where can I get a Certificate of Good Standing and Who is Required to Submit it?

Where can I get it?

You can obtain a Certificate of Good Standing from the Secretary of State office where you registered your business concern. Sometimes a Certificate of Good Standing is also referred to as a “Certificate of Fact or Existence”. The title for this document varies from State to State. In order for this document to be accepted by the SBA it cannot be any older than 90 days at time you submit your 8a Application.

Who is Required to Submit it?

All business concerns that are formed as a Corporation, Limited Liability Company or Partnership must obtain and submit this document as part of their 8a Application. If you operate as a Sole Proprietorship, this document is not required to be submitted.

Other Tips:

If you formed your business concern within a different State than the State in which the business concerns operates you must also obtain and submit a Certificate of Good Standing from each State in which you have filed a foreign entity filing.

 

Is Business Insurance Required to Get 8a Certified?

All business concerns who apply to become SBA 8a Certified must have general liability insurance at a minimum. If the business concern is required by its State law to carry workers compensation insurance it must carry this on its policy too.

For general liability insurance, there is no set minimum or maximum amount or limit of insurance required by the SBA to become 8a certified. We suggest that you consult with your insurance agent for advice on the proper levels and amounts of insurance for your business concern.

For more tips on 8a Certification requirements, please visit cloveer.com.

The 8a Business Development Program?

The SBA 8a Business Development program was formed in 1968. The Small Business Administration is responsible for administrating the program. It got the 8(a) name from Section 8(a) of the Small Business Act. It is designed to assist small disadvantaged businesses compete within the US Economy.

A major benefit for 8a participants is access to competitive and sole source federal contracts. Each year billions of dollars of contracts are awarded to 8a Certified firms.

The 8a Business Development program focuses on providing the following:

  • Business Development support such as;
    • mentoring
    • procurement assistance
    • business counseling
    • training
    • financial assistance
    • bonding
    • management and technical assistance

Firms becoming certified by the SBA begin a nine year program term. On their annual certification day each year they must file an 8a annual update which the SBA reviews to determine if they still meet all of the 8a program requirements.

Certified firms may be awarded up to $100 million in 8a contracts throughout their nine year program participation.

The nine year program is divided into the developmental and transitional stage.

The developmental stage is the first four years of participation and helps participants overcome the economic disadvantage by providing business development support.

The transitional stage comprises the final 5 years and prepares the participants for leaving the program and competing outside of the 8a program.

You must apply to become an 8a participant and meet specific requirements. Some of the requirements are that the company must be owned and controlled by individuals who are socially and economically disadvantaged. Most individuals find the complexity of the rules and regulations for applying so tough they get assistance from a company who the expertise to prepare their 8a application, such as Cloveer.