In federal government contracting to have a minority-owned business enterprise (MBE) can have its advantages. However, there are strict guidelines to follow on how to become a minority-owned business. There are also severe consequences for not following SBA minority business certification rules.
One example of a federal minority-owned business certification program is the SBA’s 8(a) Business Development Program. This program helps your minority owned company to become certified and take advantage of federal, small business set-aside and sole source opportunities worth hundreds of thousands or millions of dollars.
SBA programs are not only for minorities. There are hundreds of small businesses in the 8(a) Business Development Program that are not minority-owned companies.
What is SBA Minority-Owned Business Certification – Definition & Meaning?
In government contracting, federal minority-owned business certification applies to companies that are a for-profit business enterprise must be a small business under the respective NAICS code and located in the United States. Under SBA certification rules, the company must be owned and controlled by the qualifying member who is also US citizen.
Are You Eligible under SBA minority certification rules?
If your company is owned and controlled by a US citizen then you may be eligible to submit an SBA minority business certification application. In addition to being a US Citizen, you also show that you are both socially and economically disadvantaged. This generally means that you can show that you were subjected to racial or ethnic prejudice.
- Simply because you are a minority does not guaranty MBE certification with the federal government.
- State programs sometimes may have slightly different definitions and meaning.
Under the minority-owned definition, “control” means that the business owner must have at least 51% ownership or at least 51% of stock ownership if the company is owned by one or more such individuals. The owners must be responsible for the daily management of the enterprise.
How To Qualify for SBA Minority-Owned Business Certification Programs?
To meet the federal definition, most minority-owned business applicants are statutorily presumed to be socially and economically disadvantaged. To be eligible for most SBA minority business certification, especially the SBA 8(a) Program, you must provide narratives that explain the unique circumstances that allow you to become certified. See information about SBA 8a small business plan.
Individual small business owners who are not presumed to be socially disadvantaged must still provide persuasive evidence, with documentation showing that they have been subjected to bias or discrimination and are economically disadvantaged. See more about SDB certification.
What is a Small Business Under Federal Guidelines?
Under federal law, SBA minority certification regulations and guidelines explain the definition of a small business. Whether or not you are a minority-owned company, you must still meet the federal certification requirements to qualify as a small business. There are unique advantages in the federal procurement market to become MBE certified. However, the rules and laws can be confusing and complex.
What are the Mistakes to Avoid?
Do not make a transfer to a minority to initially qualify if you are unsure of the precise rules because unwinding a transaction and restructuring is much more difficult and costly than properly setting up a transfer in the first place to meet certification requirements, this includes an understanding of the impact of corporate law, including consents, meeting minutes, articles/bylaws, operating agreements, etc. and the interplay of this law with minority-owned business certification requirements.
- If you are a minority and making a transfer, do not make the assumption that you automatically qualify. Once again, precise limitations exist on income, assets, and net worth, company size, and again, on the structure of corporate documents and bank accounts to ensure your control over your company. You must have certain corporate documents prepared regardless of having employees or having other shareholders, members, or partners.
- Do not make the mistake of assuming 8(a) is a program designed as the sole path to make you successful. You must get contracts/clients outside of 8(a) both before and after certification to ensure you are not overly reliant on the program. You must take initiative to do so! Once you get the ball rolling, there are other programs such as Mentor Protégé and Mentor Protégé specifically for 8(a) that will assist you in doing so, that can open up doors to new opportunities and help you meet the entry requirements to 8(a) regarding other non-8(a) clients/contracts and ongoing during the Transitional Phase during 8(a).
- Do not make the mistake of assuming once you are in the program, you’re done. There are 2 Phases in the 8(a) program, a four-year developmental stage and a five-year transitional a five-year transitional phase over a nine-year period of certification. During the second/transitional phase, the company must meet business activity targets (BAT) requirements in order for the certified company to focus on maintaining a balance between its commercial and government business. This phase is imperative to continued success outside 8(a).
The above are some common mistakes and misconceptions to minority business certification you want to be careful not to make.
For more information about SBA minority certification or help with your SDB certification for a federal minority-owned business certified entity or applying for the SBA 8(a) Program, call our government small business consultants and lawyers at 1-866-601-5518.