The Small Business Administration (SBA) recently made significant changes to the requirements for establishing socially disadvantaged status in the 8(a) Business Development Program. The SBA 8(a) program, which has been in operation since 1978, provides participating small businesses with training, technical assistance, and contracting opportunities through set-aside and sole-source awards. The recent changes to the program were prompted by a July 2023 court ruling that found that the SBA's previous practice of presuming social disadvantage for certain racial and ethnic groups was unconstitutional.
The case that prompted the change stems from a lawsuit filed by Ultima, a small business government contractor based in Tennessee owned by a non-Hispanic White woman ineligible for 8(a) contracts. The U.S. District Court for the Eastern District of Tennessee ruled in her favor and overturned the SBA’s use of presumed racial and ethnic disadvantage to qualify applicants. The opinion relies partly on the Supreme Court's recent ruling striking down affirmative action in college admissions.
The new requirements mandate all 8(a) participants whose eligibility would have relied upon the presumption of social disadvantage due to their belonging to historically marginalized groups to submit a narrative about their personal social disadvantages. The narrative should explain how the individual has experienced significant obstacles to success in business, education, or employment due to their race, ethnicity, gender, or other factors.
The changes to the 8(a) program's social disadvantage requirements are a significant development for small businesses seeking to participate and, for some, a barrier. It will be interesting to see how this change affects interest in the program and federal contracting, which is already perceived as challenging by small businesses.
New 8(a) applications have been temporarily suspended while the SBA reviews the new requirements. Businesses in the program are urged to prepare a social disadvantage narrative to remain eligible for future awards.
Here are some of the elements required for the social disadvantage narrative:
In our increasingly multicultural society, we must ensure that socially and economically disadvantaged businesses have a fair shot at winning federal procurement contracts and that the process to do so remains accessible to all. This is essential to leveling the playing field and creating a more equitable economy.
The SBA has been a crucial partner to small businesses in their efforts to compete and grow. That commitment was reiterated recently by SBA Administrator Isabella Casillas Guzman who said, “…the SBA and Biden-Harris Administration remain committed to supporting this crucial program and the small business owners who have helped drive America’s strong economic growth.”
We hope the SBA reopens the registration process soon so that the program's benefits continue to be extended to those who have faced significant obstacles due to their race, ethnicity, gender, or other factors.
Minority small businesses are driving the U.S. economy, particularly women-owned firms. Forty percent of U.S. businesses are women-owned. Black women represent the fastest-growing segment of entrepreneurs, and there are over 2 million Latina-owned businesses in the country. Large corporations have become increasingly interested in supporting small businesses over the last two years. Just recently, Macy’s announced plans to invest $30 million to help minority-owned businesses in retail scale, and there have been a number of other announcements.
What’s important to note here is that many of these companies are in it for the long haul. When minority businesses thrive, business owners and employees reinvest those funds in their communities. Thriving communities stimulate a healthy economy, resulting in more discretionary spending, benefiting all businesses. But companies looking to partner with minority-owned businesses must do so from a place of empathy and authenticity. How organizations show up in diverse communities matters. Helping small businesses scale isn’t a box to be checked, but a long-term commitment to business equity.
In this episode of The New Mainstream podcast, Roberto Martinez, Founder & CEO of the Braven Agency discusses the small business ecosystem and how corporate investment impacts business equity.
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