Spending the time upfront to ensure that your firm meets all of the eligibility requirements for 8(a) Certification can save you countless hours of frustration, the expense of putting the application together incorrectly and the difference between obtaining formal 8(a) Certification or not.
Below are just 15 of the 8(a) Application “Killers”. These will immediately tell you whether you have an issue that may prevent you from qualifying for 8(a) Program certification. We also offer a online 8(a) eligibility questionnaire to help determine your overall 8(a) Program eligibility.
- The applicant (51% of more owner(s)) must be a US Citizen when they apply. They must also reside in the USA.
- The applicant must devote full time to the business that is applying for 8(a) Certification when they apply. This means the applicant must work at least 40 hours per week in the business. during its normal business hours, without any outside employment.
- The applicant must hold the highest management position within the business concern. Generally this is the CEO, President or Managing Member.
- The applicant must be able to demonstrate that they are the highest compensated individual within the business. Generally the SBA will deny your 8(a) application if you cannot demonstrate the applicant currently is the highest compensated or there is a very good reason why they have elected not to be.
- The applicant must have an adjusted net worth of less than $250,000 at the time they apply. Adjusted net worth = Personal Assets – Personal liabilities – (Equity in primary residence + value of ownership interest in business concern + IRA/401(k) or Other Retirement Accounts subject to a penalty for early withdrawal). To determine if your adjusted net worth is lower than $250,000 use our adjusted net worth calculator.
- The applicant’s AGI (Adjusted Gross Income) cannot be more than $250,000 averaged over the last three tax years.
- The applicant must generally hold all required licenses or professional certifications required to operate the business. If they do not and another equity owner does, they cannot be the holder of the required licenses or professional certifications.
- If the applicant has ownership in another business, other than the business that is applying for 8(a) Certification, the SBA may very well likely determine that you do not devote full time and therefore deny your 8(a) application. The only exception would be for ownership in an LLC solely for holding, managing and protecting real estate.
- The applicant cannot be on probation or parole. If the applicant has been arrested in the past it does not automatically deny them unless they were convicted of a specific crime. Having an arrest, regardless of how long ago, will severely delay the review of your 8(a) Application by at least 90 days.
- The business must have been in business for 2 full years (24 months) with evidence of reasonable revenues on its last two filed business tax returns in the industry it is seeking 8(a) Certification for. If it has not, you must seek a waiver and meet the 5 conditions set by the SBA to overcome this condition. Click here for detailed information on each of the 5 conditions.
- The business and the applicant(s) cannot have any delinquent tax filings or have any unpaid Federal, State, liens or local obligations at the time of application. This condition can be overcome by filing the proper extension for delinquent taxes or by providing evidence of a current re-payment arrangement for unpaid Federal, State or local obligations. All liens must be satisfied.
- The business must be at least 51% directly owned and controlled by the applicant(s) and must be defined as a “Small Business” by the Federal Government. Your primary NAICS code, gross sales and sometimes the number of employees define your size standard that the SBA will base its determination on.. The business concern must also be a for-profit business and cannot be classified as a broker or be a subsidiary of another business concern.
- The business current financial statements (balance sheet and income statement) must exhibit positive net income, positive net equity and sufficient working capital at the time of 8(a) application submission. They must also not show a downward trend.
- The business must not earn more than 70% of its total revenue with one single client, within the last 12 months and over the last three years. This does not apply to a business concern if its direct billable client is a Federal or State Government entity. If you believe you may have economic dependency you are welcome to take our economic dependency questionnaire to verify the existence or not.
- The applicant(s) or business cannot have previously participated as an 8(a) participant. The applicant cannot have any immediate family members who are current or previous participants in the 8(a) Program that are or were affiliated.
These are just 15 of the “Killers” that can potentially prevent your 8(a) Certification application from being successful. There are additional “Killers” and other areas that you should be concerned with prior to making the decision on whether you fully qualify for 8(a) Certification.