8(a) Certification – Who is Economically Disadvantaged

There are three general thresholds for being economically disadvantaged. (Spouses are not included in this calculation and should be broken-out separate from the applicant.)

Personal Income and Net Worth
1. Adjusted net worth of $850,000 or less, the exclusions to the calculation are as follows:
a. Equity in primary residence.
b. Value of the 8(a) applicant firm.
c. The value of my IRA or 401ks
d. Once 8(a) certified, for continued participation in the 8(a) program the net worth of the qualifying individual must remain under $850,000.
e. A contingent liability does not reduce an owners net worth. (Meaning a liability that may or may not occur based upon the outcome of some future event.)

2. 8(a) applicant’s income must be less than $400,000 per year on average for the previous three years. Excluding any Schedule K income from the 8(a) applicant business on the tax return.
3. Total asset value without exclusions must be less than $6,500,000.

Transfers
Transfers that are made to family members two years prior to application below Fair Market Value will be attributed to the Net Worth of the applicant. For example: If you place assets in a trust one year before applying for an 8(a) certification, those assets placed in trust will be added back to the net worth calculation.

Withdrawals
If withdrawals from the company’s retained earnings are deemed to be excessive then the owner will also be barred from certification. The calculation is as follows.
a. $150,000 withdrawal – up to $1,000,000 in sales
b. $200,000 withdrawal – between $1,000,000 – $2,000,000 in sales
c. $300,000 withdrawal – greater than $2,000,000 in sales

SBA Business Profile
Financial profiles of the small business will be compared to the financial profiles of other small businesses in the same primary industry classification or similar lines of business. The firm cannot be in the top few percentiles (3-5%) of businesses in the following areas that the SBA will compare:
a. Total Assets
b. Net Sales
c. Pre-tax Profit
d. Sales / Working Capital
e. Net Worth
Proving an individual and corresponding business is economically disadvantaged requires many detailed calculations. Feel free to call ez8a for a free 10-15 minute phone consultation to determine if your firm is a good candidate for an 8(a) certification. 513-843-4288