The SBA’s 8(a) Business Development Program offers substantial and unique opportunities for small businesses. However, and not surprisingly, access to the 8(a) program is offered to only a limited category of small business owners – those subject to a “social disadvantage.”
So, how do small business owners know if they are sufficiently disadvantaged to qualify for 8(a) admission? While there are some straight-forward answers, other situations are very much up for debate.
The SBA recognizes the definition of social disadvantage established by Federal law: “Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identification as members of groups without regard to their individual qualities.” There are certain “presumed groups” that are automatically presumed to meet this standard – for example, Black Americans, Hispanic Americans, and Native Americans. All other social groups must prove that their disadvantage rises to the level required by the SBA.
One notable omission from presumed disadvantage group: Women-Owned Small Businesses.
Women-Owned Small Businesses are automatically qualified for participation in the SBA’s WOSB program. But entry into the exclusive 8(a) club requires further specific evidence of discrimination and social disadvantage.
In a recently decided case, the SBA rejected the 8(a) application of construction contractor Arrow S. Company and its President, Lori Skaggs. The rejection turned on the question of whether Ms. Skaggs sufficiently demonstrated social disadvantage based on her experience as a female construction company owner in a historically male-dominated profession.
On appeal, it was determined that the SBA was applying too strict a standard for 8(a) eligibility. Ms. Skaggs’s evidence that she was subject to discriminatory remarks, disparate treatment, hesitancy and skepticism because she was a woman was determined to be sufficient to demonstrate 8(a) social disadvantage.
Arrow’s 8(a) experience provides a teachable moment for any small business contemplating applying to the program without an automatically presumed social disadvantage:
1. Think Big! The benefits of the 8(a) program are undeniable. If your small business meets all other requirements, you should consider the social disadvantage question carefully and creatively.
2. Know Your Industry. Social disadvantage is not measured equally across all types of businesses. As seen in the Arrow construction example, external factors beyond your control can influence whether your 8(a) application will be viewed as disadvantaged by the SBA.
3. Be Specific. The SBA will not accept your social disadvantage statement if it is presented in terms of general statements and broad platitudes. Whenever possible, provide specific examples, including names. dates, and witnesses that can verify your struggle.