To qualify for the 8(a) program, businesses must meet the following eligibility criteria:

• Be a small business
• Not have previously participated in the 8(a) program
• Be at least 51% owned and controlled by U.S. citizens who are socially and economically disadvantaged
• Have a personal net worth of $850 thousand or less, adjusted gross income of $400 thousand or less, and assets totaling $6.5 million or less
• Demonstrate good character
• Demonstrate the potential for success such as having been in business for two years

8(a) certification lasts for a maximum of nine years. The first four years are considered a development stage and the last five years are considered a transitional stage. Continuation in the program is dependent on staying in compliance with program requirements.

The federal government fully defines who qualifies for the 8(a) program — including what counts as being socially and economically disadvantaged — in Title 13 Part 124 of the Code of Federal Regulations.

Regarding the Net Worth and AGI requirements stated above, here are some excerpts from Title 13 Part 124 which shows that IRA assets and your primary residence value can be excluded:

Net worth. The net worth of an individual claiming disadvantage must be less than $850,000. In determining such net worth, SBA will exclude the ownership interest in the applicant or Participant and the equity in the primary personal residence (except any portion of such equity which is attributable to excessive withdrawals from the applicant or Participant). Exclusions for net worth purposes are not exclusions for asset valuation or access to capital and credit purposes.

(i) A contingent liability does not reduce an individual’s net worth.

(ii) Funds invested in an Individual Retirement Account (IRA) or other official retirement account will not be considered in determining an individual’s net worth. In order to properly assess whether funds invested in a retirement account may be excluded from an individual’s net worth, SBA may require the individual to provide information about the terms and restrictions of the account to SBA and certify that the retirement account is legitimate.

(iii) The personal net worth of an individual claiming to be an Alaska Native will include assets and income from sources other than an Alaska Native Corporation and exclude any of the following which the individual receives from any Alaska Native Corporation: cash (including cash dividends on stock received from an ANC) to the extent that it does not, in the aggregate, exceed $2,000 per individual per annum; stock (including stock issued or distributed by an ANC as a dividend or distribution on stock); a partnership interest; land or an interest in land (including land or an interest in land received from an ANC as a dividend or distribution on stock); and an interest in a settlement trust.

(3) Personal income for the past three years.

(i) SBA will presume that an individual is not economically disadvantaged if his or her adjusted gross income averaged over the three preceding years exceeds $400,000. The presumption may be rebutted by a showing that this income level was unusual and not likely to occur in the future, that losses commensurate with and directly related to the earnings were suffered, or by evidence that the income is not indicative of lack of economic disadvantage.

(ii) Income received from an applicant or Participant that is an S corporation, LLC or partnership will be excluded from an individual’s income where the applicant or Participant provides documentary evidence demonstrating that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses from the S corporation, LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be used to reduce an individual’s personal income.

(4) Fair market value of all assets. An individual will generally not be considered economically disadvantaged if the fair market value of all his or her assets (including his or her primary residence and the value of the applicant/Participant firm) exceeds $6.5 million. The only assets excluded from this determination are funds invested in a qualified IRA account.

Contact SDB Growth at https://sdbgrowth.com/ for more information.