SBA 8(a) Certification Facts™

 10 Myths about Certification!

A little knowledge concerning SBA 8(a) certification can be a dangerous thing. A lack of knowledge can also be very harmful. Most damaging of all is the incorrect knowledge or misinformation that EZCertify.com has heard from more than a few members of the small business community concerning the 8(a) certification. Left unchallenged, these misunderstandings grow into myths that are perpetuated, exaggerated and become the "pseudo-reality" of how the small business community, many of which are qualified to be certified, think about and act upon the SBA's certification process. Here are just ten of these myths that we've heard and a few of the facts and conclusions about each:


Myth #1:
"You have to be in business for two years before applying"

The Facts:
There is no "time in business requirement" for the SDB certification. You may apply, or now self-certify your SDB status and be certified, even if you've recently formed your business.

The 8(a) Certification process does include a "Potential for Success" application criteria, that includes a Length of Time in Business Requirement of 2 full years. What this means is that you must have been in business for at least 24 months, with revenues in your selected business area for each of the 2 years preceding the year of your application as evidenced by your firm’s Federal income tax returns, or you may seek a waiver by addressing the following factors:

1. Substantial business management experience of the individual(s) upon whom eligibility is based;

2. Information that the applicant concern has demonstrated technical experience to carry out its business plan with a substantial likelihood for success if admitted to the 8(a)BD program;

3. Information to demonstrate that the applicant concern has adequate capital to carry out its business plan as a Participant;

4. Information that documents the applicant concern's record of successful performance on contracts from governmental and/or non-governmental sources in the primary industry category; and

5. Information that demonstrates that the applicant concern has the ability to timely obtain the personnel, facilities, equipment and any other requirements needed to perform contracts as a Participant

Also, what the SBA or in fact no one else will tell you, is that you can acquire a business that has been in business for the required 2 years and legally use this as a basis to meet the two years in business criterion for 8(a) certification.

In short, if you are an experienced businessperson, with a business plan, have sufficient funds to support your business operations, previous or current contracting experience and possess a few of the basic building blocks of a successful business, you can be granted a waiver of the "2-year rule."

Conclusion:
Your length of time in business need not prevent you from 8(a)BD certification. If you want to read more about this subject, just click here.

Myth #2:
"The Federal Government doesn't purchase what my business sells"

The Facts:
The Federal Government is the single largest customer in the entire world. The closest analogy is that it resembles an international, mega-corporation, with its various departments and agencies involved in just about any facet of life imaginable. Whereas a large portion of the Federal procurement budget, 488 billion dollars in 2007, is spent on defense, in 2007, there was more than 169 billion dollars in contracts awarded by civilian agencies (e.g. Energy, NASA, GSA, Transportation, etc.). Even in the case of defense spending, a significant percentage is spent on non-weapon associated items, such as automatic data processing equipment and services, communication equipment and services, fuels, office supplies, medical services, clothing, etc. Congress ensures that this spending is also spread out across the entire country, with military bases, agency installations and large prime contractors located in every state and territory in the U.S. If you want to read more about this subject, just visit the following web site. http://www.fpdsng.com/fpr_reports_fy_06.html

Conclusion:
The Federal Government purchases virtually everything at thousands of locations nationwide.

Myth #3:
"Most small business owners are too wealthy to qualify"

The Facts:
The financial metrics that qualify an applicant for either of the 8(a) SBA program are quite generous. For example, the SDB program sets a standard of a $750K net worth versus the $250K net worth for the 8(a)BD program (at time of application; after you receive your 8(a) certification, your allowable net worth climbs to the current $750K level)). In reality, even this "net worth" is an adjusted number. The SBA subtracts the equity held in the applicant's primary residence, as well as the value of the applicant's holdings in their business from the classical net worth calculations. Also, any assets held jointly by you and your spouse are allowed to be divided in half for these net worth calculation purposes. Further, you may legally transfer certain assets from your personal property to the applicant firm, if this is done within the current regulations to reduce your personal net worth, as viewed by the SBA for 8(a) certification purposes.

There are 2 additional metrics that are used by the SBA to determine whether or not you are economically disadvantaged in addition to the above “adjusted net worth” metric. These are: 1) Your Total Assets, i.e., yours alone, not that of you and your spouse, if married, must be less than $4,000,000; 2) Your Adjusted Gross Income (AGI), a metric that you get from your IRS Form 1040, again for you and not for your spouse, if married, must have averaged less than $200,000 per year for each of the 2 years preceding the year in which you apply.

According to an Urban Institute study, non-minority men and women business owners have an average net worth of less than $100K and $50K respectfully, whereas minority men and women's net worth's are even less! According to IRS statistics, if you have an AGI of $200,000, you are in the upper 98th percentile of all U.S. taxpayers. In short, you don’t have to be impoverished to apply for the 8(a) program.

Conclusion:
The vast majority of small business owners can readily prove their economic disadvantage.

Myth #4:
"You can't pay yourself well and also be certified"

The Facts:
There are no regulatory requirements establishing maximums for the income of an applicant for either the SDB or 8(a)BD programs, although income is one of several factors used to determine their economic disadvantage. You're probably safe under the following conditions:

Further, the SBA has a limitation on the total withdrawals that you may extract from the 8(a) firm in any one year. This number is $300,000 plus the amount needed to pay any Federal and state taxes if you receive a distribution from the business, such as in the case of an S-corporation or a limited liability company.

Conclusion:
You can compensate yourself very well while participating in the 8(a)BD program.

Myth #5:
"Only small dollar contracts are awarded to 8(a) contractors"

The Facts:
In FY2007, the average 8(a)BD award was $159.9K, versus an average for all awards of $21.01K.   The following table clearly shows that certified contractors can reap significant rewards from their participation in these programs.

The truth is that 8(a) certified contractors can be awarded sole-source or noncompetitive contracts of up to $3.5M each for services and up to $5.5M each for manufacturing efforts. In the case of 8(a) set-asides or competitive contracts, where only 8(a) certified contractors are permitted to bid, there are no contract ceiling limitations, and these contracts can reach into the hundreds of millions of dollars in size.

Conclusion:
Small business does not necessarily translate into small-sized contracts.

Myth #6:
"There is not much business set-aside or awarded to certified companies"

The Facts:
FY2007 Actual Performance:

Small Business - $83.2B; $20.01K/Award Average
SDB  - $24.97B; $80.9K/Award Average
8(a)BD - $13.5B; $149.9K/Award Average

Conclusion:
Small, SDB and 8(a) contracting represents more than 25% of all Federal Government procurements. The average 8(a) contract is 7 times larger than the typical Federal government contract.

Myth #7:
"Your 8(a) business cannot be owned by a trust, and therefore if you own the applicant firm through the use of a trust you cannot apply "

The Facts:
Ownership in an 8(a) firm must be direct. Ordinarily, this direct ownership requirement prohibits the applicant firm from being owned by a trust. However, ownership by a trust, such as a living trust, may be treated as direct ownership if the trust is revocable, and the disadvantaged individual is the grantor, the sole trustee, and the sole current beneficiary of the trust.  

Conclusion:
An 8(a) firm may be owned and controlled by a trust if the trust is structured properly such that the disadvantaged individual is the grantor, the sole trustee, and the sole current beneficiary of the trust.

Myth #8:
"The vast majority of 8(a) applicants get rejected, so why waste your time?"

The Facts:

If you’ve heard that applying for the SBA 8(a) Certification is a “waste of time”, because most small businesses that do, fail in their attempts, you’re probably right. It’s more than an “old wives tale” when you hear that 7 out of 10 who apply, never get certified. It’s even worse, when we know that over 90 percent of minority and women-owned small businesses could qualify for the Federal government’s most valuable procurement assistance program. These businesses could be certified if they only knew why so many others have failed, and could avoid the “traps” that are built-in to the application process. Curious to know why so many companies fail in their attempts, even after spending months trying their best to navigate through an application process that is not for the “faint of heart”? Here’s but a few of the major reasons that most fail.

1. There are no clear instructions, detailing what the SBA is really looking for. Applicants are left to guess what information will satisfy the SBA.

2. The SBA checklists that do exist are incomplete, and if you follow them precisely, you will still fall short.

3. You will have to change your corporate By-Laws, LLC Operating Agreement, or Partnership Agreement, and the SBA doesn’t tell you how or why, and only tells you, after you’ve submitted your application.

4. In order to produce the Economic Disadvantage Narratives required of all applicants, or the Social Disadvantage Narratives, required of non-minority women and handicapped applicants, you need the combined talents of a Johnny Cochran, Tom Clancy and a Sherlock Holmes.

5. The chances of getting your Personal Financial Statement correct, complete, and in synch with the other financial data that you must provide, are as good as winning the lottery.

6. Haven’t been in business for two full years with revenues and taxes to prove it? The required “two-year waiver” narrative, that attempts to convince the SBA that your “potential for success” is a “sure thing”, is equivalent to writing a letter to Saint Peter, trying to convince him that you are an “angel on earth”.

7. Try your best to force-fit what your company does into an admittedly imperfect NAICS code system, and the SBA will insist on seeing your professional license, even if your profession doesn’t require one.

8. Unless you have or put your company governance paperwork (e.g. meeting minutes, agreements, loans, etc) in total order, and have an explanation for every type of financial transaction that “just happens” in small business operations (e.g. shareholder loans, owner compensation issues, etc.), be prepared to be challenged by the SBA.

We, at EZCertify.com see countless letters from the SBA to small businesses, who have either been rejected outright or have received a laundry-list of “so-called deficiencies” to respond to. We have developed a family of responses to each of the above reasons and countless others that continue to plague qualified applicants for the 8(a) Program, for example:

1. We know precisely what the SBA is looking for, and we automatically produce the required attachments to your application with the needed explanatory data.

2. We go beyond what is requested in the SBA’s checklist, providing our clients with the information that the SBA will ask for, anticipating their needs, and saving our clients months of unnecessary delay or rejection.

3. We provide Economic and Social Disadvantage Narrative Work-Packages, that help jog the memories of our clients to the incidents of bias or prejudice that they have experienced, and we provide “real-life”, successful examples of narratives, so that our clients will see just what these narratives must contain.

4. We provide “easy-to-use” financial data collection worksheets that automatically generate and populate the required Personal Financial Statements and eliminate all inconsistencies and mathematical errors.

5. We provide a Length-in-Time Work-Package that is easy to understand and complete, and that produces a draft of the “infamous request for two-year waiver” document, addressing all five factors required by the SBA to prove your “potential for success”.

6. We ensure that the NAICS code that is selected to represent your company’s work experience will be seen as representing what your company actually does to the SBA.

7. We will rewrite your By-Laws, Operating Agreements or Partnership Agreements, or tell you precisely what they must contain to satisfy the SBA’s suspicions that “you really run your business”, and will ensure that all company organizational, financial and other information required is provided in the correct form, and it all “hangs together”.

Conclusion:
You see, applying for the SBA 8(a) Certification need not be a waste of time, or of your money, or of your precious psychic energy.

Myth #9:
"Women and other non-designated minority business owners and Service-Disabled Veterans can't easily prove their social disadvantage and consequently can't be certified"

The Facts:

First, businesses owned and controlled by members of the following designated groups are already presumed to be socially disadvantaged:

Black Americans
Asian Pacific Americans
Hispanic Americans
Subcontinent Asian Americans
Native Americans,

and are left to prove their economic disadvantage only.

Second, non-minority women, Service-Disabled Veterans and others (those who are not members of one of the above designated groups), can, under a much more relaxed evidentiary standard used to prove your social disadvantage, termed “preponderance of the evidence” , can more easily prove their social and economic disadvantage. This proof takes the form of a narrative in which you 1) Identify the timeframe in which you believe that you experienced discrimination or bias, based on your “distinguishing feature, e.g., gender, handicap, ethnicity. etc., 2) Identify those persons and organizations that committed the prejudice or bias against you, 3) Describe the incident during which you were exposed to this bias by identifying what was said or done to you that you believe was a direct result of your “distinguishing feature”, and 4) Describe and quantify the damage to your ability to get prepared for, to enter or to succeed in your chosen business career. These events of bias or prejudice can have occurred anytime during your life here in the United States. The door to proving your social or economic disadvantage has been opened by the change in the evidentiary standard and also by EZCertify.com, which provides a roadmap and associated real-life examples of successful social and economic claims by persons, not members of the designated groups. If you want to read more about the subject of social or economic disadvantage, just visit the following link (For the social disadvantage) and this link (For the economic disadvantage)

Conclusion:
Successfully claiming and proving your social or economic disadvantage is no longer a "virtual mission impossible."

Myth #10:
"You can’t afford to pay for the professional assistance to be successfully certified only to be rejected by the SBA and lose your entire investment of money and time."

The Facts:

Prior to EZCertify.com, this myth was "right on". However, with EZCertify.com, today is a different matter. Here are some facts for you to consider:

a. First of all EZCertify does not accept any clients for the 8(a) certification that we are not sure can be successfully certified.

b. Second, we pre-qualify all candidates for certification up-front, minimizing the time to discover whether or not you are qualified for this certification.

c. Third, we know what the SBA is looking for in your application, even if they don’t ask you for this information up front, avoiding your slow and painful discovery of what they need to see in your application after months of back-and-forth challenges and requests for additional data from you.

d. Fourth, we respond to any and all SBA challenges and requests for additional or clarifying information, at no additional cost to you.

e. Fifth, we take on 100% of the responsibility for preparing a successful certification application. You provide the “raw data” and we ensure your certification.

f. Sixth, we charge for our services on a “firm-fixed price” basis. There are no hidden extras regardless how complex your case may be. You know the total investment level before we agree to work together.

g. Seventh, we do not submit an application until we know that it will be accepted by the SBA, usually on the first submission of your application.

h. Eighth, we provide a “conditional money-back guarantee” that depends only on the timely provision of readily available data from you and your total “up-front honesty” in answering a few questions that you are asked to verify up-front.

i. Ninth, we provide the “conditional money-back guarantee in writing, right up-front so that you can see what you’re getting into before you commit any investment at all to your application.

j. Tenth and finally, we don’t stop working on your behalf until you are successfully certified, understand the 8(a) program, Federal government procurement and your commitments to continue to be eligible to participate in the 8(a) program for the entire 9 year term of your participation.

Conclusion:
Getting certified using the EZCertify team of national experts, saves you time, worry and essentially ensures your certification, all backed by our “conditional money-back guarantee”. If you want to read more about this subject, just click here.

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