What is the SBA 8(a) Business Development Program?
All other things being equal, the average company wouldn’t have a very good chance at successfully entering the federal market without a little help. Thanks to the SBA 8(a) Business Development Program, though, economically and socially disadvantaged small businesses can access set-aside government contracts, as well as a number of benefits that are meant to foster long-term growth.
Even though this program is principally known for sole-source contracts to small businesses, its main goal is to develop business capabilities and build performance histories, setting 8(a) participants on a trajectory of growth that can continue well past graduation from the program.
Key benefits of the SBA 8(a) Business Development Program
To understand what this program really offers, you must look at both the short-term and the long-term benefits. Through this program, small businesses can receive:
Access to government contracts that have been set aside for participants in the SBA 8(a) Program. These include set-aside and sole-source contracts.
Training, technical assistance, and business development services from qualified experts.
An opportunity for growth, as they diversify their revenue streams and build their reputations with government contracts. This can open up new business opportunities once they’ve graduated from the program.
The option to form joint ventures with more established companies, which can increase the odds of winning federal contracts. This can also be done through the SBA’s Mentor-Protégé Program which has a separate set of eligibility requirements.
Eligibility requirements for small businesses
There are several specific criteria that a business must meet if they want to apply for the SBA 8(a) Business Development Program. Since the main benefits are targeted at economically and socially disadvantaged individuals, it’s worth knowing how the SBA defines these terms.
Socially disadvantaged – The SBA identifies several groups as “socially disadvantaged” due to cultural bias, or racial or ethnic prejudice. Since these prejudices aren’t based on individual qualities and are outside the individuals’ control, they constitute a social disadvantage. These groups include Hispanic Americans, Black Americans, Native Americans, and Subcontinent Asian Americans, among others.
Economically disadvantaged – Because of limited credit or capital opportunities, these individuals have a harder time keeping up with the competition. To be eligible for the SBA 8(a) Program, business owners must have a personal net worth that’s under $850,000, have a three-year average income of less than $400,000, or have assets valued at no more than $6.5 million. These rules are effective December 19, 2022.
In addition to being socially and economically disadvantaged, small businesses must meet other criteria for eligibility:
The company must be at least 51% owned by economically and socially disadvantaged individuals
Their primary NAICS code should be for small businesses
They cannot have already participated in the program
The business owners must be US citizens
Beyond these requirements, the SBA will also take other factors into consideration. For example, they’ll look at the characters of the company’s key stakeholders and consider the potential of the company to successfully fulfill contracts. The competition to enter this program is intense, and the SBA prioritizes candidates with the strongest qualifications.
The three stages of an 8(a) company’s life cycle
Enrollment in the SBA 8(a) Business Development Program lasts for nine years. This may sound like a long time but considering everything that small businesses are trying to accomplish while enrolled in the program, nine years goes by quickly.
Each participating company will have their own specific objectives, but it’s possible to outline three distinct stages that 8(a) businesses pass through during the nine years of the program.
Stage 1. Gaining traction (1st to 3rd year)
From years one to three, 8(a) businesses will be focused on gaining traction. Not only will they be actively applying for set-aside government contracts, but they’ll also be cultivating the business development side of things. In this stage, 95% of bids should be for 8(a) or small business set-asides.
Stage 2. Business development (4th to 6th year)
From years four to six, 8(a) businesses will continue developing and participating in teams (either as primary contractors or subcontractors). They could also find a Mentor company and/or form a joint venture as part of the SBA’s Mentor-Protégé Program, depending on whether this would give them a competitive advantage. In this stage, 75% of bids should be for 8(a) or small business set-asides.
Stage 3. Graduation from the program (7th to 9th year)
From years seven to nine, 8(a) businesses will start preparing for their eventual graduation from the program. By the end of the nine years, they should have developed the necessary capabilities to successfully compete for contracts without participation in the SBA 8(a) Program. With this in mind, only 50% of bids should be for 8(a) or small business set-asides. If becoming a Mentor as part of the MPP would be of benefit, this would be the time to start building the foundation for those plans.
Eligibility is a great first step, but it doesn’t guarantee entry into the program
While the many benefits of the SBA 8(a) Business Development Program can seem tantalizing to small businesses, it would be a mistake to assume that meeting all the qualifications can assure automatic enrollment. If you decide to apply for this program, it’s important to realize that you won’t necessarily be approved, even if you meet every requirement to the letter. Another thing to keep in mind: the application process is both lengthy and convoluted, so before you get the ball rolling, make sure that this is something you definitely want to do.
Succeeding in the SBA 8(a) Business Development Program requires hard work
Why wouldn’t a disadvantaged small business want to enroll in the SBA 8(a) Program? Because being enrolled in this program doesn’t necessarily mean the business will benefit from it.
One common misconception about this program is that the 8(a) set-aside contracts will make things easier for a small business that’s struggling to stay afloat. Since set-aside 8(a) contracts represent billions of dollars for 8(a) businesses, it’s only natural to enjoy the thought of being able to access those contracts without having to compete with larger companies.
In reality, 8(a) contracts are earned through intense competition with other 8(a) companies. Even though the pool of competition isn’t as big as the one you’ll find outside the SBA 8(a) Program, it’s still more than enough to make you work hard for every contract you win. If you aren’t prepared to outdo your competitors, you probably won’t find consistent success as you bid on government contracts.
Which small businesses should apply for the SBA 8(a) Program?
If you qualify for the 8(a) program, should you apply? Consider another one of the SBA’s programs, the 7(a) Small Business Loan program. It can be a boon for qualifying small businesses, but they should also consider the implications of joining the program. Sure, they could get some much-needed capital that helps their business grow, but they also must consider how they’d repay the loan. Even if they met every eligibility requirement, it might make more sense for some small businesses to pursue other options.
Along the same lines, the SBA 8(a) Program comes with many benefits for disadvantaged small businesses – but this doesn’t mean that every qualifying small business should apply for the program. A lack of training, business development infrastructure, or experience could doom your participation in the program to failure. Just because you qualify doesn’t mean that you should immediately apply.
Is the 8(a) Program for you?
If you’re wondering whether this program could benefit your small business, here are a few considerations to think about:
1. A lack of experience will make it much more difficult to win contracts.
Just because you’ve gotten into the program doesn’t mean you’ll be let off the hook. Your competitors in the 8(a) Program will include small businesses with proven past performance; if you can’t bring something comparable to the table, you’re likely to be sent away empty-handed time after time. Getting your first contract can be the one of the hardest parts.
2. You’ll need specific capabilities in order to compete for government contracts.
From effectively marketing your services, to responding to RFIs, to identifying opportunities in the first place, you’ll need to know how to compete for 8(a) contracts before it’s actually time to do it. This requires not only an investment of resources as you develop your business infrastructure, but also considerable dedication.
3. Winning contracts won’t happen right away.
For most 8(a) companies, it takes until Stage 1 (or later) to start winning contracts. This program isn’t for businesses who are looking for a quick money-making strategy; it’s a longer-term plan that requires patience and determination. Remember, the goal is to position your business for future growth after graduating the program, not to simply make more money while you’re an 8(a) participant.
4. Consider waiting until you have a better understanding of the federal market…and then apply.
If you don’t know anything about federal contracting, another route is to consider is waiting to apply to the 8(a) program. Many companies apply to the 8(a) program thinking that it will be their ticket to winning federal contracts and then spend years trying to get their first contract as they try to navigate the federal procurement process. They end up wasting a chunk of their nine-year 8(a) window. It may be better to get started as a small business and take your lumps early so you don’t waste any of your nine years.
Understanding the SBA 8(a) Business Development Program
This program can bring huge benefits to disadvantaged small businesses. Not only do they get access to set-aside government contracts, but they also receive assistance with training and business development. When properly leveraged, the program can have both short-term and long-term advantages.
In the short-term, small businesses can enjoy diversified revenue streams, and hopefully increased income as well. In the long-term, they can become more formidable contenders in their industries as they accumulate business savvy, experience, and a proven track record of success.