Q: I'm trying to come up with ideas for a small business. A friend told me that as a woman of Native American descent, I might be eligible for a special SBA program that will help me start a small business. He said I could compete for government contracts through this program. Can you tell me which SBA program he's referring to?
A: The SBA has a number of programs designed to help you start and succeed in your own small business. The one your friend is probably referring to is the SBA's 8(a) Business Development (BD) program.
The 8(a) program, named after the section of the Small Business Act from which it comes, is an SBA program created to help small and disadvantaged businesses better compete in the U.S. marketplace and within the arena of government procurement. The SBA provides business development, technical assistance and other services to the small businesses accepted into the 8(a) program.
The 8(a) program is reserved for what the SBA calls "socially disadvantaged individuals." Socially disadvantaged individuals are defined as those who have been subjected to racial or ethnic prejudice or cultural bias because of their membership in a disadvantaged group.
The SBA has designated the following groups as socially disadvantaged:
- African Americans
- Hispanic Americans
- Native Americans (Native American Indians, Eskimos, Aleuts and Native Hawaiians)
- Certain Asian Pacific Americans
- Other individuals who can prove they meet the SBA's criteria to be considered socially disadvantaged
One point where your friend is incorrect is that the 8(a) program is for new companies. The 8(a) program is primarily for companies that have been in business for a minimum of two years, though that rule may be waived if your company is able to meet some pretty strict management, financial and performance criteria.
Obtaining 8(a) status is no guarantee that a company will be successful in obtaining government or other contracts, but it certainly doesn't hurt. The Small Business Act mandates that all small businesses have the opportunity to provide goods and services to the U.S. government. To help ensure that mandate, the SBA negotiates annual procurement preference goals with every federal agency and reviews each agency's results to make sure the goals are met.
The statutory goals are: 23 percent of all prime contracts for small businesses, with 5 percent of prime and subcontracts for small disadvantaged businesses; 5 percent of prime and subcontracts for women-owned small businesses; 3 percent of prime contracts for HUBZone small businesses; and 3 percent of prime and subcontracts for service-disabled, veteran-owned small businesses.
A HUBZone (Historically Underutilized Business Zone) is a designated area within urban and rural communities that has been given preferential contract award consideration in an effort to stimulate economic development. A company may qualify for HUBZone status if it is owned and controlled by one or more U.S. citizens, has at least 35 percent of its employees living within the designated zone, and has a principal office located there. Without going into too much detail, suffice it to say that a company that obtains both 8(a) and HUBZone status may be entitled to double-dip in the government procurement trough-that's why you often find a number of 8(a) companies specifically moving into HUBZone areas to take advantage of the perks both programs offer.
The U.S. government purchases billions of dollars in goods and services every year, everything from staples to those wonderfully expensive toilet seats. Obtaining 8(a) status allows small businesses to compete for a portion of that business.
The basic requirements for applying for 8(a) status are that your company must be a small business as defined by the SBA, it must be owned and controlled by one or more socially and economically disadvantaged individuals who are U.S. citizens, and it must show a potential for success. The SBA defines a small business as "one that is independently owned and operated, is organized for profit, and is not dominant in its field."
As expected, the 8(a) program has both fans and detractors. Its fans are those companies that obtain 8(a) status and thereby get preferential treatment when competing for government procurement contracts. The program's detractors, meanwhile, are typically those companies that fail to obtain 8(a) status or that do not meet the definition of socially disadvantaged.
You can learn more at the SBA's Web siteor by calling your local SBA office.
Tim W. Knox is the founder, president and CEO of four successful technology companies: B2Secure Inc., a Web-based hiring management software company; Digital Graphiti Inc., a software development company; and Sidebar Systems, a company that creates cutting edge convergence software for broadcast media outlets; and Online Profits 4U, an e-business dedicated to helping online entrepreneurs start and prosper from an online, wholesale or drop-ship business.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.