8(a) Economic Dependency or the 70% Rule Explained

Do you have all your eggs in one basket? Economic Dependence is a significant obstacle to the eligibility of many applicants desiring to gain 8(a) Certification for their business. In fact, it is currently the #1 issue for which we have to turn the greatest number of potential 8(a) applicants away, until the issue is resolved.

Who counts as a Hubzone resident and how do you prove it?

By now you probably know that at least 35% of your total employees must reside in a HUBZone.  By total employees, we mean every single employee that works more than 40 hours a month, no matter where they work.  This means employees that work at your principal office, other office locations, jobsites, and remotely from home, all count towards that 35% that you must meet.

SBA 8(a) Program – Big News!

After a long time of anticipation, the SBA announced new 8(a) Eligibility Economic Disadvantage rules that go into effect on July 15, 2020. This exciting news will allow many more small business owners gain access to the SBA 8(a) Program.  See the except from Federal Register. Below are the new rules that will go into effect.

Adjusted Net Worth:
Currently the 8(a) Applicant must have an Adjusted Net Worth of less than $250,000, to become 8(a) certified and be deemed Economically Disadvantaged by the SBA. The new rule increases the 8(a) Applicant’s Adjusted Net Worth to $750,000 to become and remain 8(a) Certified.

Adjusted net worth = Assets – liabilities – (Equity in primary residence + value of ownership interest in business concern + IRA/401(k) or Other Retirement Accounts)

Five Eligibility Requirements to get SBA Hubzone Certified

If you would like a Hubzone Program eligibility analysis, please take our online hubzone eligibility questionnaire.

You are also welcome to review the basic eligibility requirements below. Generally, to be approved into the Hubzone Program you must meet these basic eligibility requirements:

Eligibility Criteria 1:
Your business concern’s principal office must be located in a qualified SBA designated Hubzone. Search the SBA’s Mapping system and verify if your principal office is located in a qualified SBA designated Hubzone.

DIY 8(a) Certification usually means certain denial or a returned application by the SBA

As the President/CEO of Cloveer, Inc. I speak to many potential clients who are interested in becoming 8(a) Certified. I would say that 7 out of every 10 people I talk to do not and cannot qualify for the 8(a) Program due to the strict 8(a) Program requirements. Many of these individuals have tried to prepare their own application without some sort of outside assistance and learn the hard way via denial or a returned application by the SBA.

Here are a just six of most typical few reasons for a denial by the SBA we find when speaking to potential 8(a) Applicants:

  1. The 8(a) Applicant firm being found to be “Economically Dependent” by earning more than 70% of its total revenues from one single client over the periods of time measured by the SBA.
  2. The 8(a) Applicant having an “Adjusted Net Worth” that exceeds the $750,000 SBA regulatory limit that cannot be lowered without violating the SBA transfer requirements or having a spouse who is involved with the Applicant Firm whose Adjusted Net Worth exceeds this requirement too.

SBA proposes new rules for 8(a) Economic Disadvantage requirements

The SBA is proposing new rules for individuals seeking 8(a) Certification regarding economic disadvantage.

The current rule requires the disadvantaged individual to meet the following economic disadvantage requirements:

  1. Have an Adjusted Net Worth of less than $250,000 to get 8(a) Certified. Have an Adjusted Net Worth of less than $750,000 once formally 8(a) Certified for continued 8(a) Program eligibility.
  2. Have an Adjusted Gross Income (AGI) of less than $250,000 over the three preceding years.
  3. Have a fair market value of less than $4,000,000 (including his or her primary residence and the value of the application business) in total assets. Less than $6,000,000 once formally 8(a) Certified for continued 8(a) Program eligibility.