The SBA’s Narrative Statement of Social Disadvantage.

 

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The SBA requires all applicant to complete a Narrative of Social disadvantage. In this article, I will be discussing the following.

1. What is the Narrative Statement of Social Disadvantage?

2. Why does the SBA require it?

3. How should you write it?

1. What is the Narrative Statement of Social Disadvantage?

The Narrative Statement of Social Disadvantage is a story an applicant writes about themselves on instances in their life where they have experienced some type of set back due to their racial background. To prove social disadvantage, the individual(s) owners must ultimately show that such personal experiences had a negative impact on entry into or advancement in the business world.

2. Why does doe SBA require it?

The SBA states that certain minority groups are designated as socially disadvantaged. That is, these groups throughout the course of history, are believed to have experienced racism. Of course, not everyone experiences this, and those who have, unfortunate as that may be, need to explain how and why to be eligible for the 8(a) program. The 8(a) program, as sated in our last articles, helps level the paying field for minorities, giving them greater opportunities to complete in a more fair playing field.

3. How Should You Write It?

The answer here is simple. Truthfully. Successful narratives are written starting with their childhood experiences, leading up to college and finally in the work force. I met with a Mexican American client today, and he didn’t quite understand how he was socially disadvantaged. Initially he could not think of any stories, but after asking him a few simple questions on his high school years and his career, he began to think of specific moments in his life that he at first did not realize what were inevitably socially inappropriate remarks by his peers. For example, accusations of fraud based on his skin color was one. A second was a teacher thinking he was cheating because he earned a high score on an exam. He was asked to retake the test in a separate room and scored an A. The teacher never questioned him again. Traumatic. I know.

Unfortunately, it’s stories like these that have kept minorities from excelling in this great country and these stories need to be told. Hence, the SBA wants to make certain that individuals applying for the 8(a) Certification have been one time or another Socially Disadvantaged.

 

Paul Mazbanian SBC Consultants, Inc. www.sbclending.com/ paul@sbclending.com/ 818-551-9400

Paul Mazbanian
SBC Consultants, Inc.
www.sbclending.com/
paul@sbclending.com/
818-551-9400

The 8(a) Social Disadvantage Eligibility Explained

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One important requirement  of the 8(a) Certification is that you meet not only the Economic definition of disadvantage but also the Social definition of disadvantage.

What does it mean to become Socially Disadvantaged?

For the purposes of the 8(a) program, the SBA deems certain minority sectors as Socially Disadvantaged. This is because, throughout the course of history, the SBA feels that certain groups have been discriminated against and therefore have not had the same opportunities as others. These presumed groups are:

  • Black Americans
  • Hispanic Americans
  • Native Americans
  • Asian Pacific Americans
  • Subcontinent Asian American

If you do not find yourself in one of these groups, you may still apply for the 8(a) certification as long you prove to the SBA how you have been held back. “To do so, the business must prove to SBA that the individual(s) meeting SBA’s ownership and control requirements is socially disadvantaged. This process includes showing personal experiences where applicable in education, employment, and business history.”

There is no getting around this easily, so making up stories will not work. The SBA is very strict when they say proof must be given through a preponderance of evidence. To prove social disadvantage, the individual owners must ultimately show that such personal experiences had a negative impact on entry into or advancement in the business world.

Evidence Requested by the SBA for those not included in any of the above presumed groups:

  • At least one objective distinguishing feature such as race, ethnic origin, gender, physical handicap, long-term residence in an environment isolated from the mainstream of American society, or other similar causes not common to individuals who are not socially disadvantaged.
  • Personal experiences of substantial and chronic social disadvantage in American society, not in other countries.
  • Negative impact on the individual’s entrance into the business world or advancement in the business world because of the stated disadvantage(s).
Paul Mazbanian SBC Consultants, Inc. www.sbclending.com/ paul@sbclending.com/ 818-551-9400

Paul Mazbanian
SBC Consultants, Inc.
www.sbclending.com/
paul@sbclending.com/
818-551-9400

Paul Mazbanian SBC Consultants, Inc. www.sbclending.com/ paul@sbclending.com/ 818-551-9400

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Most people don’t understand how becoming certified as an 8(a) firm can help propel their business to the next stage of success. Becoming approved as an 8(a) firm is like being in a fraternity or sorority. Those who have had those great experiences in college know that it is a brotherhood or sisterhood. They help each other, can understand each others needs and struggles etc. To date, there are only 10,000 approved 8(a) firms in the Unites States. You can just imagine from all the millions of Small Business in the United States what a small fraction that is. That being said, let’s get down and dirty with some hard core facts about why Minority owned businesses need to get certified.

The 8(a) program was created in order to give minority owned business a fair opportunity to bid against larger firms. The United States Government feels that Minorities in this country have not had the same opportunities that non-minorities have had. In order for Minorities to compete in a specific Industry, the Government has created programs, and if utilized correctly, can help advance a Minority Owned Business.

One of those programs, and the largest one at that, is the 8(a) Business Development Program.

FACTS ABOUT THE 8(A) PROGRAM:

  1. The 8(a) program has been dedicated 5% of all Federal procurement budgets. This means that $18.5 Billion dollars a year is reserved for 8(a) certified firms.
  2. Sole-Sourcing Contracts: This is the most attractive to me. $8.5 Billion Dollars is given to sole source awards. That is, a firm does not compete with any other firms. Even 8(a) firms. It is awarded solely to them. (More on how to get sole-source awards toward the bottom).
  3. Competitive 8(a): The remaining 10 Billion  Dollars are up for bidding between 8(certified) firms only.

More on Sole Source Awards:

In order for an 8(a) firm to be eligible for sole source awards, they need to have experience in the 8(a) program and plenty of it.  The Government wants to make sure that the sole source awards are given to firms who have been successful in the program and can handle the work load given to them.

How do you get sole source awards?

First, new firms need to gain experience by entering joint venture agreements with other firms or by entering mentor-protege agreements provided the 8(a) firm does 40% of the work and makes 40% of the profits. By working this way for some time, it helps the firm in to becoming a Federal Prime Contractor. Once you have worked as a prime contractor and proven yourself, you will then be able to get sole source contracts.

Limits for Sole Source Contracts:

1. $4 million fir products/services

2. $6 Million for manufacturing

I hope the above explained the REAL benefits in getting an 8(a) Certifications. It is not easy by all means but if there is a will, there is a way.

Paul Mazbanian SBC Consultants, Inc. www.sbclending.com/ paul@sbclending.com/ 818-551-9400

Paul Mazbanian
SBC Consultants, Inc.
www.sbclending.com/
paul@sbclending.com/
818-551-9400

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Computing Personal Net Worth for the 8a Certification.

The 8a Certifications, like all other Certifications have guidelines and rules. The 8a Certification is by far the most difficult of Certifications to get and thus the most strict when it comes to Personal Net Worth. The SBA states that an applicants, personal Net Worth May not exceed $250,000, excluding their home, retirements accounts such as 401k or IRA’s and their equity in their primary business. However, there are other factors that applicants must consider. Remember that it excludes the equity in the primary business. But what happens if you own multiple businesses, but are only applying under one business? The rule of thumb is that the equity you possess in the other businesses MUST be included in your Personal Financial Statement and will be added to your assets.

How do you know what to add? The line items to look for are Retained Earnings and Capital Stock.

The Retained Earnings are the earnings the owner forgoes to take as a distribution and lets the company retain them. Hence the term retained earnings. Retained earnings is a balance sheet item.

Capital Stock represents the size of the equity position of a firm and can be found on the balance sheet as well.

Reasoning Behind This:

This is a conservative way of determining the value of the business to be included on the personal financial statement.  It could significantly undervalue or overvalue the company by using this method.  If it severely undervalues the business (in other words, if the owner could sell the business for substantially more than the total of the retained earnings and capital stock investment), then you’ll want to support the “real” value of the business with an appraisal value submitted by a qualified/licensed business appraiser.

A lot of people applying on their own tend to forget to add Retained Earnings and Capital Stock for their additional business to the computation of personal net worth. This is a HUGE mistake and after spending hours and hours of work getting the 8a application complete, this minor overlook can be a waste of time.

**Take a look at our latest Video Testimonial HERE.

Paul Mazbanian SBC Consultants, Inc. www.sbclending.com/ 818-551-9400

Paul Mazbanian
SBC Consultants, Inc.
www.sbclending.com/
818-551-9400