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Qualifying Tips for becoming 8(a) Certified

The 8(a) Certification, in our experience, is the most rigorous application process of any government certification.  That does not mean the process is impossible however, 75% of firms experience rejection. 

Social Disadvantaged

Individuals with 100% of their blood heritage from a minority group that are also U.S. Citizens qualify.  People with as low as 25% of their blood heritage from a minority group can apply, however a narrative must be written.  For Native American Indians that have a tribal card they are also eligible. 

 

Women and Service-Disabled Veterans can apply, however a compelling case demonstrating how they have suffered from discrimination that impacted them financially must be shown.

 

Tip 1:  People with Heritage from the Iberian Peninsula (Spain/Portugal) are considered Hispanic for proving social disadvantage.

Tip 2:  People from the Middle East and North Africa can successfully apply, however they need a solid narrative.

Tip 3:  Native Alaskans, and Hawaiians often overlook their social disadvantage status. 

Tip 4:  The Social Disadvantaged Individual or group of individuals needs to own 51% or more of the firm. 

 

Economically Disadvantaged

The owner of the firm can not have made more than $350,000 per year, on average, for the past 3 years. 

The owner’s net worth cannot exceed $750,000 excluding (a.) the owner’s primary residence, (b.) the business applying for 8(a) (c.) the owners retirement accounts.

The owners’ total assets cannot exceed $6 million excluding retirement accounts.

 

Tip 1:  If your business is a sole proprietorship, partnership, LLC or S Corp, the amount of money the income that rolls onto an individual’s taxes does not count towards the $350,000 in net income, if the money is placed back into the firm in retained earnings, or the funds paid in taxes on those retained earnings.

Tip 2:  If an individual has money in excess of the $750,000 they can paydown the mortgage on their primary residence, which, in some cases, this can get them under the $750,000 threshold. 

Tip 3:  The SBA will pull a credit report on the applicant, with the intention of looking for assets that have not been disclosed to the SBA. 

 

Potential to Succeed at Federal Contracting

The owner of the firm must work full-time for the business, meaning Monday-Friday from 9am-5pm.

The firm must have made a profit on its most recent tax return.

The firm must have a positive net worth.

The firm must have been in business for two-years, meaning having filed two tax returns.  However, there is a two-year waiver that can be applied for.

Not more than 70% of the firm’s revenue can come from a single source.  This is usually analyzed by the SBA on a rolling 12-month basis from the date of the 8(a) application.

 

Tip 1:  Only the 51% owner of the firm needs to work full-time for the business.

Tip 2:  A two-year waiver of business can be obtained, provided the firm meets all other 8(a) qualifications, has at least $150,000 in revenue since the inception of the firm, and shows a profit on the firms most recent tax return.  The firm must have at least 1 tax return.

Tip 3:  If a firm has a long-standing client representing 100% of the firm’s business, and the firm loses this client, and obtains another client which now has 100% of the firm’s work, there is often a point in time where the firm becomes compliant with the 8(a) 70% rule, and can apply for 8(a).

Tip 4:  The SBA waives the 70% rule for firms applying for 8(a) with a two-year waiver.     

 

Control Issues

The owner of the firm must be the one managing the day-to-day operations, long-term strategic planning, and, in most cases, the most highly compensated person.

 

Tip 1:  Not more than 25% of the firm’s revenue should come from a past employer.

Tip 2:  The firm should not share employees, or office space with a past employer, or firm they have other dealings or entanglements.

Tip 3:  The owner of the firm should be the highest paid person at the firm, unless there is a strong and reasonable justification for this not being the case.   

 

Moral/Ethical Considerations 

The owner of the firm must be free of moral and ethical problems.

 

Tip 1:  The owner’s taxes should be paid up to date, or have a payment plan in place with the IRS.

Tip 2:  Any misdemeanor or felony, regardless of how old, must be disclosed to the SBA.  In most cases, offenses that are more than 5-7 years old will be forgiven by the SBA.  Failure to disclose is never forgiven by the SBA.  The SBA pulls an FBI background check on each applicant, and this will uncover any issues.