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8a Application – 70 percent Rules

The SBA has a concentration of business rule that is based upon OHA court precedence. This precedence does not permit an applicant firm to have a single client representing more than 70% of the 8a applicant firm’s overall business. The rational the SBA uses is that this creates a likelihood of success issue because if the firm lost the major client this would create a “going concern” issue for the firm. In addition being over 70% reliant on one client will often create an identity of interest causing an affiliation between the two entities causing an additional reason for the SBA’s denial of the application.

From interviews with the SBA it has been revealed that the SBA first looks at the firms “snap-shot” for the current year. If the firm is under the 70% threshold by a “reasonable margin” the SBA will end its enquiries at this point and usually not investigate further. If the firm is not over this threshold by a large enough margin then the SBA will look at a combination of the prior three years, and include the current year in its calculation.

Year Clients Billing
2012 ABC Engineering $400,000
2012 XYZ & Company $200,000
2012 AAA Enterprise $200,000

50% concentration in one firm – the SBA will most likely not continue its enquiries. The firm will pass the 70% rule.

Example 2

Year Clients Billing Percentage
2012 ABC Engineering $400,000 100%
SBA Conducts Further Enquirers based upon 100% Customer Weight
2011 XYZ & Company $300,000  
       
2010 AAA Enterprise $500,000  
       
2009 YYY Inc. $200,000  
Total Billing Percentage
ABC Engineering $400,000 28.6%
XYZ & Company $300,000 21.4%
AAA Enterprises $500,000 35.7%
YYY Inc. $200,000 14.3%

Even though the 8a applicant firm has one customer in any given year the greatest overall percentage of business with AAA Enterprises is 35.7% which is under the 70% threshold, so therefore the firm is able to be certified.

Example 3

Year Clients Billing Percentage
2012 ABC Engineering $400,000 32.0%
2012 AAA Enterprise $850,000 68.0%
SBA Conducts Further Enquirers based upon 68% Customer Weight
2011 XYZ & Company $300,000  
2011 AAA Enterprise $600,000  
       
2010 AAA Enterprise $500,000  
       
2009 YYY Inc. $200,000  
2009 AAA Enterprise $250,000  
Total Billing Percentage
ABC Engineering $400,000 12.9%
XYZ & Company $300,000 9.7%
AAA Enterprises $2,200,000 71.0%
YYY Inc. $200,000 6.4%

Under the scenario above the firm would fail and not be eligible at this time for the 8a certification based upon the 71% being over the 70% weight with AAA Enterprises.