By Jonnie Loadwick
Since 1978, when Congress gave Section 8(a) of the 1958 Small Business Investment Act a clearer vision and criteria, thousands of small businesses in America have applied for and have been granted 8(a) status. The authorization allows minority-owned companies, those owned by socially and economically disadvantaged individuals, to obtain a footing in contracting with federal agencies. In 1988, the U.S. Small Business Administration (SBA) program was further simplified, emphasis was placed on planning and providing the service, and a term limit of nine years was implemented.
The benefits of applying for 8(a) status, according to the SBA, include:
- Participants can receive sole-source contracts, up to a ceiling of $4 million for goods and services and $6.5 million for manufacturing.
- 8(a) firms are also able to form joint ventures and teams to bid on contracts. This enhances the ability of 8(a) firms to perform larger prime contracts and overcome the effects of contract bundling, the combining of two or more contracts together into one large contract. The SBA also has a Mentor-Protégé Program for beginning 8(a) companies to learn the ropes from other more experienced businesses.
For the last eight years, I’ve been helping New Mexico companies with 8(a) applications through one-on-one counseling. I can tell very quickly by talking with a business owner if his or her company is ready to apply for 8(a) status. My questions to him or her might include:
- Has the company been in business for at least for two years?
- Do you have a good recordkeeping system? Do you keep regular financial statements, and do you understand what those financial statements are telling you?
- Has the company been involved in government contracting previously?
- Do you have a past performance statement, a record of the work you did for the government or other entity, the amount received, what you did, and the date?
- Do you have cash reserves or a line of credit, or the ability to obtain a loan for contract needs before you receive payment from the government?
If the answer is no to one or more of these questions, then the business is not ready to submit an application for 8(a). Some of the requirements of the SBA program include that the company has to be in business for at least two years and has to keep good records for accounting purposes. Since the 8(a) program has a limit of nine years, it helps to understand the federal contracting process and be ready when an opportunity arises. I ask about financial reserves because often times payment won’t be delivered until the job is completed.
Other items that I ask for to determine qualification:
• Business and personal tax returns from all owners owning 10% or more of the business.
• Business structure paperwork (LLC, partnership agreement, or corporate paperwork, including articles of incorporation and operating agreements),
• Business financials—balance sheets and income statements for last fiscal year,
• A completed personal financial statement for qualifying individual and spouse.
These items will help me further determine whether a business is eligible because this is where we find any discrepancies in documentation to be submitted. The SBA will scrutinize everything and do its own background checks, so this is where I try to identify and avoid problems. When we identify weaknesses in a business, the applicant can fix any problems before 8(a) submission.
As you can tell, the process to apply for 8(a) status is a long, tedious process. When a client is finished gathering the paperwork, often he or she will have a packet two to three inches thick. Once the paperwork is submitted, there are only two SBA offices in the country that review and validate the application. New Mexico applicants will be sending their applications and supporting documentation to the San Francisco office.
Once you get through the process, not only do you have more contracting opportunities, you will have fixed many of your businesses weaknesses through the process.
PTAP hosts several Government Certifications workshops a year, and the 8(a) process is explained in those workshops. The majority of those workshops are in Albuquerque, but sometimes will be in other locations around the state. Check out the PTAP website to see when and where the next workshop is scheduled. I will be glad to assist you in any way I can. Call or email me to set up a one-on-one appointment today. My office phone is (575) 935-7827 and my email is email@example.com.
Obtaining 8(a) certification is quite a process, but the rewards can be great. PTAP can help.