SBA 8(a) certification requirements are primarily focused on the owner or owners of the business, their social and economic status, and net worth. While your business must be operating profitably, there are no debt-service-coverage or credit score requirements. When it comes to qualifying for the Small Business Administration 8(a) program, the certification requirements are, in many ways, less restrictive than those for an SBA loan.
SBA 8(a) Certification Qualifications
Compared to other SBA programs, the SBA 8(a) certification qualification requirements are minimal. To qualify for certification, your business must meet the SBA’s definition of a small business, be at least 51% owned and controlled by members of a socially and economically disadvantaged demographic, and you must meet certain financial requirements.
Small Business Definition
Your business must meet the SBA’s definition of a small business. This size standard varies by industry, so it’s important to know what the qualifying standards are for your particular business. For some industries, the SBA uses a business valuation to determine whether your business meets the size requirement; for others, the determination is based on the number of employees.
The SBA lists the metrics used, and maximum thresholds in a table based on the North American Industry Classification System (NAICS) code of the business. To determine which metric is used for your business type, locate your corresponding NAICS code on the size standards table.
Definition of Socially and Economically Disadvantaged
Your business must be at least 51% owned and controlled by United States citizens who are socially and economically disadvantaged. To prove that your business meets this requirement, you will be asked to provide a narrative indicating how you and your business are disadvantaged and indicating which disadvantaged population you fall into.
In general, the groups that the SBA recognizes as being presumed socially and economically disadvantaged are:
- Hispanic Americans
- Black Americans
- Native Americans
- Asian Pacific Americans
- Subcontinent Asian Americans
While these groups are presumed disadvantaged, you can still qualify—on a case-by-case basis— as socially and economically disadvantaged, even if you do not fall into one of these categories.
Within your narrative, you will need to include evidence to support your qualification as a socially and economically disadvantaged business. Proof of socially disadvantaged status must include personal experiences based on at least one distinguishing feature, such as race, ethnic origin, gender, or handicap, which has negatively impacted your advancement into the business world.
In addition to being able to prove that you, as a business owner, have a social and economic disadvantage, you will also be required to meet specific financial criteria.
The financial requirements for SBA 8(a) certification are:
- Net worth must be $250,000 or less
- Assets of $4 million or less
- Personal income of less than $250,000, which are averaged over the last three years
Your evidence to support meeting these requirements will be submitted in the form of personal tax returns and asset valuations for your personal assets.
The socially and economically disadvantaged business owner or owners must manage the day-to-day operations for the business. The SBA will review your organizational structure, your business documents, including the articles of incorporation, bylaws, and partnership agreements, to verify the ownership rights of those applying.
SBA 8(a) certification is only available to businesses that are already operating profitably. This program is not intended to bolster a failing business. As such, your business must be able to demonstrate that it is operating successfully. In general, this is proven by showing two full years of profitable business operations, as verified by income statements and IRS tax returns.
Good Standing With the Federal Government
Your business and all principal owners must be in good financial standing with the US government. This means that you cannot owe delinquent taxes and cannot be in default on any federal loans, including student loans.
When it comes to SBA 8(a) certification requirements, there aren’t many to meet. However, while requirements such as the size of your business and the owner’s financial status are objective, it can be difficult for small business owners to prove they are socially and economically disadvantaged. Because this requirement is subjective, many small business owners elicit the assistance of an independent SBA 8(a) consultant prior to applying.