What is an 8(a) Firm
An 8(a) firm is a small business that is owned and operated by socially or economically disadvantaged individuals. The status is designated by the Small Business Administration (SBA), the United States agency charged with supporting the growth and development of small businesses.
BREAKING DOWN 8(a) Firm
The 8(a) status is specially granted to any small business by the SBA, making it eligible for financial assistance, training, mentoring and any other form of assistance. In order to qualify for this special status, businesses must be owned and operated by individuals who are considered socially or economically disadvantaged.
The 8(a) status is outlined specifically in Section 8(a) of the Small Business Act, and is designed to help small, disadvantaged businesses compete in the general market.
Rationale Behind 8(a) Firms
One of the main reasons behind the creation of the 8(a) status was to increase business involvement by a broader portion of society. The SBA identifies several groups that are eligible for 8(a) status including: Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans.
Benefits of 8(a) Status
Through the 8(a) Business Development Program, owners can compete for special contracts that help level the playing field for their small businesses. These small businesses can use the program to form joint ventures with already-established businesses to form mentor-protégé relationships, as well as for management and technical assistance.
Criteria to Qualify for 8(a) Status
In order to qualify for 8(a) status under SBA guidelines, a business must meet the following criteria:
- It must be a small business.
- It must not have participated in the program before.
- At least 51 percent of the business must be owned and operated by U.S. citizens who are considered economically and socially disadvantaged.
- It must be owned by someone with $4 million or less in assets.
- The owner must manage day-to-day operations and must make long-term decisions.
- The owner must be of good character.
Owners interested in taking part in the program must first register their businesses on the SBA's website. The administration will then send a letter to the owner explaining whether the business was accepted into the program. The certification lasts for nine years — the first four years are considered to be developmental, while the remaining five are deemed to be a transition phase.
In order to keep its status and good standing in the program, the business is subject to annual reviews. During these, the owner will have to draw up business plans and will have to undergo systematic evaluations.