How to apply for SBA 8(a) Business Development Loans
This article discusses how to apply for SBA 8(a) Business Development Loans, its benefits, eligibility criteria, and more.
A part of the SBA loan program called SBA 8(a) Business Development Loans seeks to provide socially and economically disadvantaged small business owners an equal chance at winning contracts with the federal government. The SBA states that the federal government aims to provide at least 5% of its yearly budget for federal contracts to small companies run and managed by people from socially and economically disadvantaged backgrounds. The SBA 8(a) program encourages such chances for small enterprises at least 51% owned by people from socially and economically disadvantaged backgrounds. This article discusses how to apply for SBA 8(a) Business Development Loans, its benefits, eligibility criteria, and more.
What is the SBA 8(a) Business Development Loans program?
The SBA 8(a) Business Development Loans is an SBA loan program in an effort created to make it fairer for entrepreneurs who are socially and economically challenged while competing for federal government contracts. Businesses that meet the requirements may bid for reserved projects for program participants. Additionally, they may get mentorship, access to other beneficial resources, and assistance from SBA specialists in making bids for federal contracts.
Benefits of SBA 8(a) Business Development Loans
Two primary advantages of the SBA 8(a) Business Development Loans exist. They have access to unique SBA resources that may assist businesses in navigating the federal contracting arena in addition to being able to compete on contracts designated for them.
The ability to get specific contracts as sole-source suppliers on government contracts is the greatest tangible advantage of SBA 8(a) Business Development Loans. Manufacturers may get up to $6.5 million from the sole-source contracts, while suppliers of products and services can receive up to $4 million. Participants in SBA 8(a) Business Development Loans may collaborate to create joint projects and submit joint bids for bigger contracts.
To jointly compete on contracts that have been designated for small contractors, the mentoring component of the 8(a) SBA loan program encourages participating companies to establish connections with bigger organizations. The small business mentee may profit from the mentor’s experience and financial support. The mentor is given permission to submit bids for contracts that it would otherwise be unable to pursue without its mentee. This program is only open to small firms that have never received a government contract.
A business opportunity consultant, an SBA employee specialized in assisting small contracts, may also be allocated to small businesses participating in the 8(a) SBA loan program. Additionally, SBA hosts seminars on management, branding, and other subjects for 8(a) enterprises. Additionally, 8(a) loan participants have accessibility to SBA-backed loans, excess government property, and assistance with surety bonds.
Social and economic disadvantages of SBA 8(a) Business Development Loans
It’s crucial to understand what the SBA 8(a) Business Development Loans means for “socially disadvantaged” and “economically disadvantaged” company owners or corporations. Businesses appealing for these conditions should anticipate that the SBA will need them to provide a prepared statement and financial records to evaluate their eligibility. The official meanings of both words may be found in eCFR (the Electronic Code of Federal Regulations).
Eligibility criteria for SBA 8(a) Business Development Loans
The following requirements must be satisfied by firms to be eligible for the 8(a) SBA loan program:
- Qualify as a small business
- No past participation history in the 8(a) SBA loan program
- At least 51% ownership or control of socially and economically disadvantaged Americans
- Own assets of no more than $6.5 million, an adjusted gross income of no more than $400k, and a personal net worth of no more than $850k
- Show excellent moral character
- Show that you have the potential to succeed by citing things like your two-year business history
The maximum tenure of an 8(a) small business certification is nine years. The initial four years are seen as a development time, while the latter five are considered a transition stage. Maintaining compliance with program standards is necessary to continue in the program.
In Title 13 Part 124 of the Code of Federal Regulations, the federal government clearly outlines who is eligible for the 8(a) SBA loan program, including what constitutes social and economic disadvantage.
Business valuation to qualify for SBA(8) Loans
In addition to the eligibility criteria given above, businesses need a business valuation from an independent valuation expert to apply for SBA 8(a) Business Development Loans in the following cases:
- If the amount being funded exceeds $250,000 after deducting the assessed value of any real estate or equipment
- If the buyer and seller have a close connection
Due to the independence requirement, it is dangerous to rely on appraisals conducted by brokers or other parties with a stake in the transaction’s success. A qualified valuation agent is a person who frequently receives payment for business valuations and who matches the following requirements:
- has obtained one of the many valuation credentials, such as Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV), Certified Business Appraiser (CBA), or Certified Valuation Analyst
- is a licensed Certified public accountant who conducts the valuation in compliance with the AICPA’s Statement on Standards for Valuation Services (CVA)
How to apply for SBA 8(a) Business Development Loans?
Here are the steps to apply for SBA 8(a) Business Development Loans. Make sure to follow them one by one:
- Check if your business is eligible – On its website, the SBA has compiled a list of requirements to be considered for the program. In addition to being selected for a business-level meeting, you must show how you are socially or economically disadvantaged. This implies that you must demonstrate whether your personal experiences have impacted your capacity for economic success. Franchises, non-profits, brokers, delivery companies, companies owned by other disadvantaged enterprises, and non-profit organizations are not eligible to apply. It is crucial to remember that you will not be eligible if you have already taken part in the program before. If you lack moral integrity, there is another aspect that disqualifies you.
- Meet the two-year rule – The SBA evaluates your chances of success based on how long you’ve been in business. A company must have been operating for at least two years to be eligible for the SBA program. Due to the high business failure rate within the first two years, they have this criterion. Your two most recently filed federal tax returns are the simplest approach to demonstrate that you fulfill this condition. You’ll need to file a waiver request if you just have one year’s worth of company tax returns.
- Collect all the documents and information – You must complete an online training and self-evaluation program mandated by the SBA. By doing so, they can decide if you are prepared to apply for the SBA 8(a) Business Development Loans. To ensure you are ready to submit the applications and documents, you may also contact your neighborhood SBA office.
- Get Certified – You may submit your 8(a) SBA loan program business certification application to the SBA online. You may need to send signed physical copies. Although a written application may be submitted, the SBA advises that you submit it online to speed up the process. Your request will be checked for completeness, and you’ll have two weeks to submit further details if necessary. Within 90 days of receiving the completed application, the SBA will determine eligibility for the 8(a) SBA loan program.
- Create a business plan – You’ll have to produce a business plan after you’re certified. To be qualified for SBA loan program benefits, this plan must be reviewed by an SBA Business Opportunity Specialist (BOS). Additionally, you need to have your SBA BOS go over your approved business plan. Next, determine how many annual 8(a) Program contracts you will need in the next year. The following need to be mentioned in a business plan:
- A study of the market’s possibilities.
- Assessment of your abilities and limitations as a program member.
- Specific objectives for corporate growth.
- A strategy for managing transitions.
- Forecasts for upcoming contract awards.
- Get business valuation – When getting a business valuation from an independent valuation expert, the applicant must follow the requirements below:
- The lender is required to obtain and prepare a valuation report. A broker may suggest a valuation specialist but can not employ the valuator directly.
- The lender cannot use a valuation created for the buyer or seller, although the buyer may pay the price.
- The “scope of work” for the valuation assignment should specify whether the transaction involves the acquisition of an asset or shares and should be detailed enough for the valuator to understand what is involved in the sale, which includes any assumed debt.
- The valuator’s judgment of worth, credentials, and a signature testifying to the information included in the valuation report.
- The valuator’s financial data must be sent to the lenders, who must cross-check it with the seller’s IRS transcripts.
- According to relevant criteria, the valuation report must arrive at a “conclusion of value” rather than a “calculated value”.
How to get certified for SBA 8(a) Business Development Loans?
Applying for SBA 8(a) Business Development Loans certification is quite easy. Observe these five stages:
- Prepare a business profile – Create a free company profile first on the General Services Administration-run System for Award Management (SAM) website.
- Register your business – After everything is set up, you’ll register to do business with the US government. You’ll want your Data Universal Numbering System (DUNS) number, employment identity number (EIN), and NAICS code to complete this stage.
- Set up SBA 8(a) Business Development Loans certification account – Create a user account by going to the SBA certification website. You’ll need to provide specific information about your company, so be prepared with business and personal financial records, including tax returns, profit-and-loss statements, bank statements, and other essentials.
- Complete SBA8(a) application – After setting up your accounts, you may submit the free online SBA 8(a) application by following the directions on the SBA website.
- Go through annual review to maintain 8(a) certification – Once a company has SBA 8(a) certification, it is valid for a maximum of 9 years. A yearly evaluation is necessary for businesses to keep their certification. Consult the SBA’s yearly review checklist to be ready.
Time duration of getting an SBA 8(a) Business Development Loans certificate
Applications under the 8(a) SBA loan program are typically handled in 90 days. The length of time depends on the backlog of applications, and you risk a delay if you send in forms that are either missing information or are filled out wrongly. The SBA will inform you through SBA Certify if your application is insufficient.
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