When applying for your 8a certification, there is one common issue that sometimes confuses applicants. The question on whether you meet SBA 8a net worth requirements becomes complicated when there are second mortgages on the primary residence, etc.
Although the 8a Program rules seem straightforward, applicants still have concerns about related issues such as rentals, mortgages and retirement accounts. Besides, there are cases where the SBA has denied 8a applications through its own error.
Do you meet the 8(a) program qualifications?
To qualify for the 8(a) program, you must meet the following program requirements
- Be a small business
- Not already have participated in the 8(a) program
- Be at least 51 percent owned and controlled by U.S. citizens who are economically and socially disadvantaged
- Be owned by someone whose personal net worth is $250,000 or less
- Be owned by someone whose average adjusted gross income for three years is $250,000 or less
- Be owned by someone with $4 million or less in assets
- Have the owner manage day-to-day operations and also make long-term decisions
- Have all its principals demonstrate good character
- Show potential for success and be able to perform successfully on contracts ( this is non-appealable)
What Does The SBA Look At For Net Worth Requirements?
The SBA looks at 8a certification requirements to analyze your access to capital and credit and determines a range of factors, including:
- Income for the past three years,
- Personal net worth, and
- The total fair market value of the applicant’s assets.
Fair market value of assets includes the value of your company and the value of the primary residence but excludes retirement accounts.
Tip: SBA OHA lacks authority to unilaterally admit a petitioner into the 8(a) BD Program. If it finds the SBA’s determination to be unreasonable, however, it can order the SBA to grant entry into the Program. See G.M. Hill Eng’g Inc., SBA No. BDPE-496, Ruling And Order Denying Government’s Petition For Reconsideration (2013).
Tip: An individual with a personal net worth of more than $250,000 is not considered economically disadvantaged. 13 CFR 124.104(c)(2). When calculating net worth, the SBA excludes the ownership percentage in the applicant company and the equity in the owner’s primary personal residence. Id. Funds invested in an official retirement account are also excluded from the net worth calculation, as is income from the applicant company that is reinvested in the company or used to pay the company’s normal taxes. 13 CFR 124.104(c)(2)(ii)-(iii).
SBA Economic Thresholds – Assets, Income, Net Worth
When looking at your 8a application, the SBA will look at the qualifying applicants seeking to be certified as disadvantaged and the supporting documentation to prove the value of their assets, income, and to make sure that the net worth falls below certain threshold amounts. These include:
- Assets cannot exceed $4 million
- Personal income cannot exceed $250,000, averaged over 3 years
- Adjusted net worth must be less than $250,000
Exclusions from Net Worth Requirements: When determining net worth, the SBA does not include your interest in the company, the equity in your primary personal residence, or the value of any official retirement accounts.
If you find that the SBA miscalculates your net worth, and denies your 8a certification application, you will want to do more than just make the allegation. Instead, you will want to articulate the particular error(s) and submit a request for consideration on the issue.
You should have a CPA that understands the rules to make a detailed report as to why the net worth calculation is in error. See Matter of Ironwood Commercial Builders, Inc., SBA No. BDPE-532 (2014) for tips on home loans, second mortgages, etc.
See Information About Complying With SBA 8a Program Annual Requirements.
Learn more about getting 8(a) Sole Source Contracts With the Government.
For help with your application and making the appropriate adjustments for meeting SBA certification requirements, call our government small business experts at 1-866-601-5518.