Understanding the 8a Application Denial and Appeals Process is Critical Before Acting
After you submit your 8 a application, there is a 60% chance that you will experience problems with denials and appeals. One of the biggest problems in the application process is that applicants fail to show that the are in control of the business.
There are various ways that the SBA can get to this result. There are also substantial amounts of cases that provide guidance into the winding facts and details. Without an understanding of how courts look at these facts, small businesses will continue to have 8a application problems.
To increase your chances of getting your 8a application approved and gain entry into the 8(a) BD Program, you must be unconditionally owned and controlled by one or more socially or economically disadvantaged individuals who are of “good character,” are citizens of the United States, and who can demonstrate the potential for business success.
13 CFR 124.101. By SBA definition, a socially disadvantaged individual is someone who has been “subjected to racial or ethnic prejudice or cultural bias within American society.” 13 CFR 124.103(a).
Resolving 8a Application Problems
When resolving 8a application eligibility problems, you should be aware that there is a rebuttable presumption that Black Americans, Hispanic Americans, Native Americans (including Alaskan and Hawaiian natives), and Asian Pacific Americans are socially disadvantaged. 13 CFR 124.103(b). This presumption may only be overcome with credible evidence to the contrary.
- When the SBA analyzes your 8a application it applies the rule that ownership and control are not the same thing, though the same person could both own and control an applicant company. 13 CFR 124.106.
- The certification requirements that disadvantaged individual is an “owner” if he or she has direct, unconditional ownership of the applicant firm. 13 CFR 124.105. To ““control” a firm, you “must devote full-time to the business during the normal working hours of firms in the same or similar line of business.” 13 CFR 124.106(a)(3).
Legal Burden of Proof When Challenging 8a Application Denials and Appeals: As an 8a applicant seeking entry into the 8(a) BD Program, you actually bear the burden of proving your eligibility by a preponderance of the evidence in the administrative record.
Your application should always be supported with facts to support your conclusions. Without supporting facts or evidence, the SBA is free to draw its conclusions. This is where an experienced 8a certification consultant can help you to sift through the confusion and improve your chances of getting 8a certified.
Common Reasons for 8 a Application Denial
Family Owned Businesses: As an 8a applicant, although you meet the general criteria you can still be denied entry into the 8(a) Program if you have an immediate family member who is or has been a participant in the 8(a) Program. The regulation state that “Ownership of another Participant in the same or similar line of business: (1) An individual may not use his or her disadvantaged status to qualify a concern if that individual has an immediate family member who is using or has used his or her disadvantaged status to qualify another concern for the 8(a) BD Program.
The SBA may waive this prohibition if the two concerns have no connections, either in the form of ownership, control or contractual relationships and provided the individual seeking to qualify the second concern has management and technical experience in the industry.
Where the concern seeking a waiver is in the same or similar line of business as the current or former 8(a) concern, there is a presumption against granting the waiver. As the 8a applicant you must provide clear and compelling evidence that no connection exists between the two firms.
Physical Challenge and Disability: When showing that any physical disability has impaired your ability to get business, your 8a application is not required to convince the SBA that the result was actually motivated by bias. Southern Aire. Inc., SBA No. BDP-453, p. 8 (2012);
- Instead, your 8a application must only present evidence sufficient to lead the SBA to conclude that it is more likely than not that bias was a factor.
- Although your application does not have to provide conclusive proof of the event, the event “must be presented in sufficient detail to be evaluated.” An 8a certification application consultant or lawyer can help you to provide the supporting documentation in your application package.
You want to do this up front and not risk the chance of a denial. If you wait until the appeal process to then introduce new evidence to prove your case, then the appeals court will dismiss the case. This is true for the simple reason that you cannot introduce new evidence at the appeals stage.
To be sufficiently detailed, your 8a application must generally describe (1) when and where the incident occurred; (2) who discriminated; (3) how the discrimination took place; and (4) how you, the applicant, was adversely affected by the discrimination. No corroborating evidence is necessary.
- Although the SBA is free to consider lack of corroboration in your 8a application while weighing the evidence, any evidence that has not been contested must be accepted as true. See information about identity of interest and common management.
8a Application Ownership and Control Problems
In order to participate in the Program, a business concern must be unconditionally owned and controlled by one or more socially and economically disadvantaged individuals.
If you submit an 8a application that hints that you do not have actual control of the business, then your application may be denied. A clear example is when there is a partnership dispute or lawsuit.
Your business documents must first show that you, as the controlling member, have the final say so. For applicants that have a 50/50 ownership, your application will more than likely be denied because on its face, you partnership agreement does not give you “control” of the business.
As you can see, there are many mistakes made in the 8a application simply because you might not be aware of the fine print and analysis used by the SBA. When it comes to other family businesses, you must be extremely careful when applying for certification.
SBA Rationale for Denying Your 8a Application
When denying your 8a application, the SBA must provide you with adequate notice of the facts and reasons for denying your application. You can prevail on appeal if you can show that the denial was arbitrary, capricious, or contrary to law.”
If the 8a application denial letter appears too general or conclusory, the SBA OHA will reverse the SBA’s decision.
Call an 8a Certification Consultant or Lawyer at 1-866-601-5518 for a Free Initial Consultation.