Small Business Topics: U.S. Small Business Administration: The "SBA's 8(a) BD Program" Part 3

And finally, the third part of the FAQs of the "SBA's 8(a) BD Program" here: 23. What is a super majority? A super majority is the percentage of votes above a simple majority (51%) required to make decisions on behalf of the firm. 24. Are there restrictions placed on nondisadvantaged individuals in terms of their relationships with disadvantaged individuals and/or applicant firm?

Yes. Nondisadvantaged individuals may be involved in the ownership and management of an applicant firm, as stockholders, limited liability members, partners, directors, and/or officers. However, no such nondisadvantaged individual or immediate family member may

Exercise actual control or have the power to control the applicant firm;

Be a former employer or principal of a former employer of any disadvantaged owner of the applicant firm; and

Receive compensation from the applicant in any form as directors, officers, or employees, including dividends that exceed the compensation to be received by the highest officer. The highest ranking officer may elect to take a lower salary than a nondisadvantaged individual only upon demonstrating that it helps the applicant firm. If one or more of these situations exist, the nondisadvantaged individual will be found to control the firm. Additionally, nondisadvantaged individuals or entities having an equity interest in an applicant firm and who provide critical financing, bonding, or a critical license, may be found to control the firm.

25. What factors are considered by SBA in evaluating the potential for successful 8(a) requirement?

SBA will evaluate the following:

the technical and managerial experience of the applicant firm's managers,
the firm's operating history, ability of the firm to access credit and capital,
the firm's financial capacity,
the firm's record of performance, and
whether the applicant firm or individuals employed by the firm hold the requisite licenses if the firm is engaged in an industry requiring professional licensing.

26. Does SBA have a minimum length of time in business requirement for 8(a) program certification?

Yes. The applicant firm must have been operational for at least two full years as evidenced by business income tax returns for each of the two previous tax years which show operating revenues in the primary industry in which the applicant firm is seeking 8(a) program certification.

27. Can a firm still apply for participation in the 8(a) BD Program if it has not been in business for two full years?

Yes. However, the firm must obtain a waiver of the two years in business requirement by meeting all of the following conditions:

The individual or individuals upon whom eligibility is based must have substantial business management experience.
The applicant firm must demonstrate the technical experience to carry out its business plan with a substantial likelihood for success.
The applicant firm must have adequate capital to sustain its operations and carry out its business plan.
The applicant firm must have a record of successful performance on contracts from governmental or non-governmental sources in its primary industry category.
The applicant firm must have, or must be able to demonstrate that it has, the ability to timely obtain the personnel, facilities, equipment, and any other requirements needed to perform on contracts if it is admitted to the 8(a) program.

28. Can a firm be declined entry into the 8(a) Program for reasons of character?

Yes. The regulations stipulate that the applicant concern and all its principals must have good character. SBA may determine that a lack of character demonstrated by any one of the following circumstances:

Adverse information regarding possible criminal conduct by the applicant and its principals;
Violations of SBA regulations; Debarment or suspension of firms and/or individuals;
Lack of business integrity as demonstrated by information related to an indictment or guilty plea, conviction, civil judgment, or settlement;
Principals of the firm are currently incarcerated, or on parole or probation; or
Evidence that the firm knowingly submitted false information during the application process.

29. Are brokers eligible for the 8(a) BD Program?

No. Brokers are not eligible for the program. A broker adds no material value to an item supplied to a procuring activity, does not take ownership or possession, and does not handle the item procured with its own equipment or facilities. If the applicant firm is a broker, but does not meet this definition, the firm may be eligible for 8(a) program participation.

30. What happens if an 8(a) Program applicant firm or any of its principals fail to pay significant financial obligations owed to the federal government?

If an applicant firm or any of its principals fail to pay significant financial obligations owed to the federal government, including unresolved tax liens and defaults on federal loans or other federally assisted financing, the applicant firm will be ineligible for 8(a) program participation.

31. How long does the 8(a) BD application process take?

The regional Division of Program Certification and Eligibility (DPCE) has 15 days to review the application for completeness. If the application is incomplete, the applicant will have 15 days to provide additional information. If the DPCE determines the application is complete, a final decision regarding 8(a) BD Program eligibility will be made within 90 days after SBA's determination that the application is complete.

32. What if an 8(a) Business Development Program application is declined?

Each program applicant has the right to request that SBA reconsider a declined application by filing a written request for reconsideration within 45 days after receiving notice that the application was declined. The applicant has the burden of overcoming each reason cited in SBA's decision to decline the application. During the reconsideration process, the applicant must provide any additional information and documentation necessary to overcome the reason(s) for the initial decline. If an application is declined after reconsideration, SBA will not accept a new application until twelve (12) months after the date of the final Agency decision on reconsideration In addition, if an applicant is declined solely on issues of social disadvantage, economic disadvantage, ownership, control, or any combination of these four criteria, the declined applicant may appeal the decline decision to SBA's Office of Hearings and Appeals (OHA). This can happen either after receiving the initial decision to decline the application or after receiving a negative decision on reconsideration. OHA examines the decline decision to determine whether it was arbitrary, capricious, or contrary to law. No new or revised information is considered during the appeal process.

33. How long can a company participate in the 8(a) program?

Program participation is divided into two stages: the developmental stage and the transitional stage. The developmental stage is four years and the transitional stage is five years. The developmental stage is designed to help 8(a) certified firms overcome their economic disadvantage by providing business development assistance. The transitional stage is designed to help participants overcome the remaining elements of economic disadvantage and to prepare participants for leaving the 8(a) program.

34. Are 8(a) firms reviewed by SBA annually for compliance with eligibility requirements?

Yes. As part of an annual review, each Participant firm must submit to the servicing district office the following:

A certification that it meets the 8(a) BD program eligibility requirements;
A certification that there have been no changed circumstances which could adversely affect the Participant's program eligibility;
Personal financial information for each disadvantaged owner;
A record from each individual claiming disadvantaged status regarding the transfer of assets for less than fair market value to any immediate family member, or to a trust in which an immediate family member is a beneficiary, within two years of the date of the annual review. The record must provide the name of the recipient(s) and family relationship and the difference between the fair market value of the asset transferred and the value received by the disadvantaged individual;
A record of all payments, compensation, and distributions (including loans, advances, salaries, and dividends) made by the Participant to each of its owners, officers, directors, or to any person or entity affiliated with such individuals;
IRS Form 4506, Request for Copy or Transcript of Tax Form; and
Such other information that SBA may deem necessary.
When a Participant fails to provide documentation for annual review, SBA may initiate termination proceedings.

35. What does it mean to be "terminated" from the 8(a) BD Program?

The term "terminate" is used to refer to a Participant's exit from the 8(a) BD Program prior to the expiration of its program term for good cause. Examples of good cause include, but are not limited to the following:

Submission of false information in the concern's 8(a) BD application, regardless of whether correct information would have caused the concern to be denied admission to the program, and regardless of whether correct information was given to SBA in accompanying documents or by other means.
Failure by the concern to maintain its eligibility for program participation.
Failure by the concern for any reason, including the death of an individual upon whom eligibility was based, to maintain ownership, full-time day-to-day management, and control by disadvantaged individuals.
Failure by the concern to obtain prior written approval from SBA for any changes in ownership or business structure, management, or control.
Failure by the concern to disclose to SBA the extent to which non-disadvantaged persons or firms participate in the management of the Participant business concern.
Failure by the concern or one or more of the concern's principals to maintain good character.
A pattern of failure to make required submissions or responses to SBA in a timely manner, including a failure to provide required financial statements, requested tax returns, reports, updated business plans, information requested by SBA's Office of Inspector General, or other requested information or data within 30 days of the date of request.
Cessation of business operations by the concern.
Failure by the concern to pursue competitive and commercial business in accordance with its business plan, or failure in other ways to make reasonable efforts to develop and achieve competitive viability.
A pattern of inadequate performance by the concern of awarded section 8(a) contracts.
Failure by the concern to pay or repay significant financial obligations owed to the Federal Government.
Failure by the concern to obtain and keep current any and all required permits, licenses, and charters, including suspension or revocation of any professional license required to operate the business.
Excessive withdrawals, including transfers of funds or other business assets, from the concern for the personal benefit of any of its owners or any person or entity affiliated with the owners that hinder the development of the concern.
Unauthorized use of SBA direct or guaranteed loan proceeds or violation of an SBA loan agreement.
Conduct by the concern, or any of its principals, indicating a lack of business integrity. Such conduct may be demonstrated by information related to a criminal indictment or guilty plea, a criminal conviction, or a judgment or settlement in a civil case.
Willful failure by the Participant business concern to comply with applicable labor standards and obligations.
Material breach of any terms and conditions of the 8(a) BD Program Participation Agreement.
Willful violation by a concern, or any of its principals, of any SBA regulation pertaining to material issues.