SBA Rule Alters the Thresholds for 8(a) “Economic Disadvantage”

Obermayer Rebmann Maxwell & Hippel LLP
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Obermayer Rebmann Maxwell & Hippel LLP

Last week, we blogged about the Small Business Administration’s (“SBA”) May 11, 2020 final rule, and how it impacts certification and related eligibility for women-owned businesses. But this was not the only change made by the SBA’s new rule. The rule also made changes to 8(a) regulations relating to “Economic Disadvantage.”

Those of you who are well versed in the SBA’s small business programs will know that “Economic Disadvantage” is relevant to two different programs: the 8(a) program and the Economically Disadvantaged Women-Owned Business program. Each of these programs measure economic disadvantage by evaluating three major metrics. Namely, net worth, adjusted gross income, and fair market value of total assets.

Prior to the new revisions to the regulations, “economic disadvantage” was defined a bit differently for each program. Specifically, while the EDWOSB program had one singular threshold that applied for both initial and continued eligibility, the 8(a) program set forth two different thresholds for each metric – one for initial entry into the program, and a higher threshold that for continued eligibility. The EDWOSB thresholds were the same as the 8(a) “continued eligibility” thresholds but, because the 8(a) program had the separate “initial eligibility” threshold, there was a lack of uniformity. Companies could be certified as EDWOSBs, but be rejected from the 8(a) program if their numbers fell between the two thresholds. This created confusion and inconsistency.

The revised regulation eliminates this issue. As amended, the 8(a) regulations will eliminate the 8(a) program’s dual threshold system – they will no longer distinguish between initial entry into, and continued eligibility for, the 8(a) program. Eligibility criteria will be the same for both and, further, will be the same thresholds that apply to the EDWOSB program. Specifically, the three thresholds will be: $750,000 net worth, $350,000 adjusted gross income, and $6 million total assets.

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