The U.S. Small Business Administration’s (SBA) 8(a) Business Development Program (the 8(a) Program) is a popular set-aside program that provides a lot of opportunities for small businesses. In hopes of becoming one of those successful businesses, it is common for a company to invest a lot of time, money, and resources into their 8(a) Program application. When SBA denies their 8(a) application, a company may feel like it was all a waste and accept the loss. Focusing only on the denial alone, the company fails to review SBA’s reason for denial. And what if SBA’s reason was wrong? Well, this post explores the option to challenge a denial of an 8(a) application.
A prior blog post, Somewhat Appealing: Which SBA Certifications Can You Appeal From, walks through the SBA’s socioeconomic programs and their appealability, explaining which certifications allow an applicant to appeal their denial to SBA’s Office of Hearings and Appeals (OHA). For the 8(a) Program, appealing SBA’s denial to OHA is permitted, but only under certain circumstances.
An applicant may appeal SBA’s denial to OHA if their denial into the 8(a) Program “is based solely on a negative finding of social disadvantage, economic disadvantage, ownership, control, or any combination of these four criteria.” 13 C.F.R. § 124.206(a).
An applicant is barred from appealing SBA’s denial decision if it was based at least in part on the applicant’s failure to meet any other eligibility requirements. For example, if the denial was because the applicant failed to demonstrate potential for success (which is fairly common), then SBA’s decision may not be appealed to OHA. So, if the appeal denial lists the following reasons, it can’t be appealed: 1) economic disadvantage, 2) control, and 3) potential for success. Because potential for success is one of the three reasons, SBA’s rule prohibit an appeal. We’re not sure of the policy reason behind this, but SBA has had that rule on the books for quite some time now.
Further, an applicant must file the appeal with OHA within 45 days after the applicant received SBA’s denial decision. 13 C.F.R. § 124.206(b).
How will I know if I have the right to appeal?
The regulations impose two duties on SBA when declining an applicant’s admission into the 8(a) Program.
When SBA informs an 8(a) applicant of its denial into the 8(a) Program, SBA is required to 1) “state the specific reasons for denial,” and 2) “inform the applicant of any appeal rights.” 13 C.F.R. § 124.204(f).
Applicants are afforded the opportunity to review SBA’s findings in relation to the application. If SBA’s denial letter does not include any reason behind the denial, the applicant could likely appeal the denial based on SBA’s failure to follow the required notification procedures.
What can OHA do on appeal?
Even though OHA has jurisdiction to review SBA’s decision, OHA’s determination is only limited to whether SBA’s 8(a) denial decision was “arbitrary, capricious, or contrary to law.” 13 C.F.R. § 134.406(b). OHA will find SBA’s decision arbitrary, capricious, or contrary to law if the decision constitutes a clear error of judgment.
OHA will find a clear error of judgment if SBA:
- Fails to properly apply the law and regulations to the facts of the case;
- Fails to consider an important aspect of the problem;
- Offers an explanation for its determination that runs contrary to the evidence; or
- Provides an implausible explanation that is more than a difference between [OHA’s] views and those of the SBA.
See Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
If the determination is not arbitrary, capricious, or contrary to law, then OHA will uphold the denial on appeal.
OHA will remand SBA’s decision for further review if it is clearly apparent from the record that SBA made an erroneous factual finding or a mistake of law. 13 C.F.R. § 134.406(e)(2). The regulations note that one example of an erroneous factual finding would be SBA double counting an asset of an individual claiming disadvantaged status. SBA applying the wrong regulatory provision in its evaluation of the record would be an example of a mistake of law.
While it may be disheartening to receive a denial letter from SBA, the reasons behind the denial can be extremely valuable to the applicant when considering whether there are grounds to file an appeal. Even if an 8(a) applicant doesn’t believe filing an appeal is necessary, it is important to always review SBA’s findings behind the denial if interested in re-applying in 90 days.
Questions about this post? Email us. Need legal assistance? Give us a call at 785-200-8919.
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