Two of the Small Business Administration’s programs require the applicant to demonstrate that they are economically disadvantaged: the 8(a) Business Development Program (8(a) Program) and the Economically Disadvantaged Woman-Owned Small Business Program (EDWOSB). The 8(a) Program requires applicants to be owned and controlled by both socially and economically disadvantaged individuals per 13 C.F.R. § 124.101. Applicants of the EDWOSB program must be owned and controlled by one or more economically disadvantaged women per 13 C.F.R. § 127.200(a)(2). But what exactly does it mean to be “economically disadvantaged,” and do both programs have the same requirements? Below I discuss the economically disadvantaged requirement contained in both programs. Read on to find out whether they are the same, and more.
Woman-Owned Small Business
13 C.F.R. 127.203 states, “[a] woman is economically disadvantaged if she can demonstrate that her ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business.” So how is an applicant to prove this? Well, the answer lies in three criteria.
- The woman’s personal net worth must be less than $750,000, excluding her ownership in the applicant firm, her personal residence, and any investment she has made into an IRA or other retirement account.
- A woman is disadvantaged if the woman’s personal income was $350,000 or less per year when averaged over the three years preceding the application. If over that limit, SBA will presume the woman is not economically disadvantaged, but this presumption may be rebutted if she is able to prove that an income exceeding this requirement was unusual and not likely to occur in the future. Additionally, income that was reinvested into an applicant concern that is an S corporation, LLC, or partnership will be excluded.
- The woman’s fair market value of all assets, including primary residence and value of the business, must be at or below $6 million. Note, this requirement still excludes investments made into an IRA or other retirement account.
It is important to note that assets transferred in the two years prior to application will be included in any calculations if the assets were transferred to an immediate family member or a trust that has a beneficiary of an immediate family member unless the transfer was for the family member’s education, medical expenses, essential support or in recognition of a special occasion like a birthday or graduation. Additionally, SBA may consider the woman’s spouse’s financial situation when determining a woman’s access to credit and capital when the spouse is not employed by the applicant firm but will include it when the spouse has a role in the applicant firm or the spouse has provided financial assistance to the applicant firm.
13 C.F.R. § 124.104 also states individuals are economically disadvantaged if they are socially disadvantaged and, “[their] ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities.” To be determined economically disadvantaged for 8(a) purposes, the socially disadvantaged individual must demonstrate they meet the following criteria:
- The socially disadvantaged individual’s personal net worth must be less than $750,000, excluding her ownership in the applicant firm, her personal residence, and any investment she has made into an IRA or other retirement account.
- A socially disadvantaged individual’s personal income was $350,000 or less per year when averaged over the three years preceding the application. If over, SBA will presume the individual is not economically disadvantaged, but this presumption may be rebutted if she is able to prove that an income exceeding this requirement was unusual and not likely to occur in the future.
- The fair market value of all assets held by the socially disadvantaged individual, including primary residence and value of the business, must be at or below $6 million. Note, this requirement still excludes investments made into an IRA or other retirement account.
Look familiar? It should. The criteria for admittance to the 8(a) Program and the criteria to be certified as an EDWOSB are identical. Therefore, it should come as no surprise that determining eligibility for the 8(a) Program also has the same requirements and exceptions for transfers and whether SBA will include the spouse’s income.
Naturally, many women readers may ask themselves, “If I qualify for the EDWOSB program, should I also apply for the 8(a) program, or vice versa?” The answer to that is two-fold. Although each situation is different, generally women who are members of a presumed disadvantaged group, as contained in 13 C.F.R. § 124.103(b), would benefit greatly from admittance into the 8(a) Program, SBA’s most longstanding socioeconomic set-aside program for federal government contracting. And the steps required for applying (as explained in this post) are fairly similar to those for EDWOSB.
Women who are not part of a presumed disadvantaged group would also benefit generally, but there will be more of a hurdle because the applicant must draft a social disadvantage narrative to demonstrate, among other things, that her distinguishing feature caused a social disadvantage that was chronic, substantial, and negatively impacted her entry into or advancement in the business world. Therefore, the question you must ask yourself is whether the reward of having a larger pool of solicitations to choose from is worth extra effort to be admitted into an additional program, and whether you could qualify as socially disadvantaged.
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