The SBA’s 8(a) Business Development Program is the crème de la crème of federal government contracting and there is a high bar to entry for admission. Among other things, individuals that are not a member of one of the recognized groups that is automatically presumed to be socially disadvantaged must prove they were socially disadvantaged throughout their life through what is called a social disadvantage narrative. Beyond that, there are a number of other qualifications, such as being economically disadvantaged, a business’s potential for success, and evidence of good character that must also be met. 13 C.F.R. § 124.101. The process is difficult, and once an individual is admitted, they no doubt want to make the most of it.
Oftentimes, small businesses that participate in the 8(a) SBA’s Business Development Program remain in the Program for the full 9 years that the SBA allows, which culminates in the small business “graduating” from the program. 13 C.F.R. § 124.302. Sometimes, the business grows so successfully that it no longer meets the qualifications of being small, and thus is required to graduate early from the 8(a) Program. So how exactly does that happen? Read on to find out.
Who can graduate the 8(a) Program early?
13 CFR § 124.301 covers graduation and voluntary early graduation from the 8(a) Business Development Program. Graduation occurs at the end of the 8(a) Program term, which is currently set at 9 years. While there was an extra year granted during the COVID-19 pandemic, that is the one exception. A participant can graduate prior to the expiration of its program term (early graduation) where SBA determines that:
(1) The concern has successfully completed the 8(a) BD program by substantially achieving the targets, objectives, and goals set forth in its business plan, and has demonstrated the ability to compete in the marketplace without assistance under the 8(a) BD program; or
(2) One or more of the disadvantaged owners upon whom the Participant’s eligibility is based are no longer economically disadvantaged.
The SBA will determine that the participant substantially achieved its targets, objectives, and goals in its business plan by looking at the “totality of the circumstances” of the following factors: (1) Degree of sustained profitability; (2) Sales trends, including improved ratio of non-8(a) sales to 8(a) sales since program entry; (3) Business net worth, financial ratios, working capital, capitalization, and access to credit and capital; (4) Current ability to obtain bonding; (5) A comparison of the Participant’s business and financial profiles with profiles of non-8(a) BD businesses having the same primary four-digit SIC code as the Participant; (6) Strength of management experience, capability, and expertise; and (7) Ability to operate successfully without 8(a) contracts. 13 CFR § 124.302(b).
The SBA may also require early graduation if the concern exceeds the size standard of the primary NAICS code for three successive program years, or if excessive funds or other assets have been withdrawn from the Participant, causing SBA to determine that the Participant has demonstrated the ability to compete in the marketplace without assistance under the 8(a) Program. 13 CFR § 124.302(c)-(d).
How does early graduation occur?
A concern may decide to voluntarily graduate early from the 8(a) Program, according to 13 CFR § 124.301, if the participant “has substantially achieved the goals and objectives set forth in its business plan.” To initiate early graduation, the Participant must notify its servicing SBA district office of its intent to do so in writing. Once the SBA servicing district office processes the request and the District Director recognizes the withdrawal or early graduation, the Participant is no longer eligible to receive any 8(a) BD program assistance.
There are no proactive steps the 8(a) participant must take when it determines it has exceeded the size standard for three successive program years. Rather, the SBA has the duty to notify participants via a Letter of Intent to Graduate Early when it believes the participant has exceeded the size standard. 13 CFR § 124.304(b). Upon notice from SBA, the 8(a) participant has 30 days to submit a written response explaining why the proposed grounds should not justify early graduation. If the concern does not have any objections to the Letter of Intent, SBA then refers the matter to the Assistant Administrator (AA) for DPCE to determine whether early graduation is warranted. 13 CFR § 124.304(c). If the AA determines early graduation is warranted, the matter is then referred back to SBA to process. The 8(a) participant will then receive a Notice of Early Graduation. It is at this point that the 8(a) participant is no longer eligible for program assistance. 13 CFR § 124.304(d).
While early graduation from the 8(a) Program is a good indicator of how a business is growing, it also means the end of the benefits that come along with being a part of the 8(a) Program. Though many participants remain in the 8(a) Program the full 9 years, some grow so exponentially that they no longer qualify, which leads me to a final question to dwell on:
Do you think it is better to remain in the 8(a) Program for the full 9-year term, or do you think the goal of early graduation is a better measurement of long-term success?
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