What is an 8(a) Firm?
An 8(a) firm is a small business that is owned and operated by socially and economically disadvantaged citizens and that has been accepted into the 8(a) Business Development Program. This program is administered by the Small Business Administration (SBA), the United States agency charged with supporting the growth and development of small businesses. The 8(a) program is designed to help disadvantaged entrepreneurs get government contracts and access the economic mainstream in America.
- 8(a) firms are small businesses that are owned and controlled by socially and economically disadvantaged individuals.
- The (8)a Business Development Program is run and administered by the SBA, or Small Business Administration, with the goal of giving a leg up to specially selected small businesses.
- The 8(a) program helps aspiring entrepreneurs obtain government contracts and also includes mentoring, procurement assistance, training, financial assistance, management assistance, and technical assistance, among other benefits.
- Applicants go through a rigorous application process for 8(a) status. 8 (a) status lasts up to nine years from when it is granted.
How 8(a) Firm Status Works
The 8(a) status is specially granted by the SBA to any small business that qualifies, making it eligible for financial assistance, training, mentoring, and other forms of assistance. In order to qualify for this special status, businesses must be owned and operated by individuals who are considered socially and economically disadvantaged. These individuals may have been subject to racial or ethnic prejudice or cultural bias.
The 8(a) status is outlined specifically in Section 8(a) of the Small Business Act, and is designed to help small, disadvantaged businesses compete in the general market. The federal government has a stated goal of awarding at least 5% of federal contracting dollars every year to these businesses.
The Purpose of the 8(a) Business Development Program
One of the main reasons behind the creation of the 8(a) status was to increase business involvement by a broader portion of society. The SBA identifies several groups that are eligible for 8(a) status, including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Someone who is not a member of one of these groups may still get into the program if they can show significant evidence of having been socially disadvantaged—for instance, due to race, ethnic origin, gender, and physical handicap, among other causes.
Through the 8(a) Business Development Program, owners can compete for special contracts, such as sole-source government contracts for which there are no competitive bids, that help level the playing field for their small businesses. These small businesses can use the program to form joint ventures with already-established businesses to form mentor-protégé relationships, as well as for management and technical assistance. Businesses must meet certain requirements to be eligible to be a protégé.
Qualifications for 8(a) Firm Status
In order to qualify to become an 8(a) firm under SBA guidelines, a business must meet the following criteria (effective July 15, 2020):
- It must be a small business.
- It must not have participated in the program before.
- At least 51% of the business must be owned and operated by U.S. citizens who are considered economically and socially disadvantaged.
- The owner's personal net worth must be no higher than $750,000
- The owner's average adjusted gross income (AGI) must be $350,000 or less.
- The owner must have no more than $6 million in assets.
- The owner must be of good character.
- It must show the potential for success and be able to perform successfully on contracts.
Title 13 Part 124 of the Code of Federal Regulations (CFR) spells out who qualifies for the 8(a) program as well as what counts as being economically and socially disadvantaged.
Small businesses with 8(a) status can receive sole-source contracts, up to a ceiling of $4 million for goods and services and $6.5 million for manufacturing.
The first step: getting certified
Owners interested in taking part in the program are encouraged to do an on-line training and self-evaluation course through the 8(a) Business Development Suitability Tool. The course helps entrepreneurs determine whether or not their company meets the qualifications for the 8(a) program and if it does not, directs them to an appropriate SBA resource.
Before a firm can participate in the 8(a) program, it must first be certified at certify.SBA.gov. And small businesses that want to use the certification website must have a profile at SAM.gov, which is where companies register to do business with the U.S. government. (Contact your local SBA office if you have questions about applying.) Once you have applied, the administration will send a notification letter explaining whether the business was accepted into the 8(a) program. The certification lasts for nine years—the first four years are considered to be developmental, while the remaining five are deemed to be a transition phase.
Small businesses that gain 8(a) status are subject to annual reviews in order to keep the designation and their good standing in the program. During these reviews, the business owner has to draw up business plans and undergo systematic evaluations. Entrepreneurs who have secured 8(a) firm status say that the application process can be lengthy and rigorous, having prior experience with government contracts can be helpful, and working hard to take advantage of the program's benefits can make the experience very rewarding.