A Small Disadvantaged Business (SDB) is a business that is owned by an economically or socially disadvantaged person. An SDB is eligible for federal contracting programs. However, there are challenges to establishing this status.
Socially and economically disadvantaged individuals
When a small business is owned by a socially or economically disadvantaged individual, it is called a disadvantaged business. Disadvantaged businesses include businesses owned by women, African Americans, Hispanics, Native Americans, American Indians, or Asian-Pacific Americans.
These disadvantaged businesses are eligible for certain federal procurement benefits. The Small Business Administration, through its Section 8(a) Program, offers financial assistance and managerial support to participating firms.
The SBA also offers a certification program. To obtain certification, a small business must demonstrate economic disadvantage. Economic disadvantage is defined as impaired access to capital, credit opportunities, or the ability to compete in the free enterprise system. For example, a disadvantaged business has less access to credit than other small businesses.
A small disadvantaged business must be owned by a socially or economically ad disadvantaged individual, must be independently operated, and must meet size standards. It must be able to self-represent as a small disadvantaged business on the System for Award Management (SAM).
The Small Business Act was passed in 1953. It provides for financial assistance to small businesses and guarantees a fair share of government contracts to small businesses. In addition, there are several programs designed to provide contracting opportunities to disadvantaged small businesses.
Among the programs are the Women’s Small Business Development Program, the 8(a) Business Development Program, and the Women-Owned Small Business Federal Contracting Program. Each program is different, but all of them offer contractual and management assistance to disadvantaged small businesses.
The Women’s Small Business Federal Contracting Program limits competition for women-owned small businesses. Similarly, the Small Disadvantaged Business Office monitors the progress of 24 Executive Branch agencies in contracting with Small Disadvantaged Businesses. Applicants for the SBA 8(a) Program must be financially disadvantaged.
Several municipal governments, as well as state and federal programs, exist to assist aspiring small businesses. They are designed to help address structural economic imbalances.
The Small Business Act has been updated several times, but the criteria for eligibility remain the same. This includes being lawfully granted permanent U.S. residency and having a personal net worth of $250,000 or less.
Whether you are a disadvantaged business or not, it can be a good idea to apply for Small Disadvantaged Business Certification. This is a great way to strengthen your case for government funding.
Firms that are at least 51% owned by one or more individuals
Small disadvantaged business firms are firms that are at least 51% owned by one or more individuals who are socially and economically disadvantaged. These types of small businesses are eligible for special bidding benefits and for federal procurement benefit programs.
To become a small disadvantaged business, a company must meet SBA size standards for its primary industry. It must also have a managerial or technical background. The owner must be capable of directing the day-to-day operations of the business.
There are three categories of disadvantaged business owners: women, service-disabled veterans and minority groups. Each group has a unique set of requirements. For example, to qualify as a service-disabled veteran-owned business, a veteran must be a documented member of a North American tribe, have been disabled during his or her military service, and have served at least 181 days of continuous active duty in peacetime.
Similarly, to be a minority-owned business, the business must be primarily managed by members of a particular minority group, such as African Americans, Hispanics, Asian-Pacific Americans, and Native Americans. In addition, the majority of the voting equity must be held by members of that minority group.
One of the largest categories of small businesses, the Disadvantaged Business Enterprise (DBE) is a for-profit firm owned by economically and socially disadvantaged people. Ownership must be direct, not through a trust.
Minority-owned firms must be physically located in the United States. If a trust owns the business, its revocable terms can be treated as functional equivalents of the disadvantaged individual ownership requirement. Similarly, a minority group can control the day-to-day operations of the firm if it appoints a majority of the board of directors.
The Service Corps of Retired Executives is a nonprofit organization whose mission is to connect volunteer business-management counselors with prospective small business owners. During its nearly twelve-year history, it has helped more than 20,000 small business owners with business development and management issues.
Lastly, there are two main programs run by the Small Business Administration (SBA) that provide resources for small businesses. One of these programs is the 8(a) Program, which is designed to help eligible socially and economically disadvantaged small businesses compete for federal contracts.
Eligibility for federal contracting programs
The SBA 8(a) Business Development program offers small disadvantaged businesses a variety of assistance to help them become competitive in the federal procurement market. This includes business training and technical assistance. It also provides management support and financial assistance.
Eligibility for this program is based on a number of factors. First, a business must be operated by socially and economically disadvantaged individuals. Second, the firm must be independently owned and meet certain size standards. Third, the company must be located in the United States. Fourth, the firm must be in a primary industry that is defined by the SBA. Finally, the company must have been in business for at least one year.
If the firm is eligible for the program, it may qualify to bid on contracts under a Small Disadvantaged Business Set-Aside. In addition to the above criteria, a firm must be certified by the SBA. The 8(a) certification process lasts for up to nine years. To start the process, a business must register with the government’s SAM website.
The HUBZone program provides qualified small businesses with federal contracting opportunities. These opportunities can include sole source and subcontracting contracts. However, a HUBZone company must meet certain size requirements, including a minimum of 20 percent HUBZone employees.
The Women-Owned Small Business (WOSB) program is another federal contracting preference. A WOSB is a small business that is at least 51 percent owned by women. They must also be managed by primarily women.
The Small Business Act defines a small business as a for-profit organization that is independently owned and operated. The SBA establishes standards for size to ensure that all small businesses are competitive and meet the criteria for government contracts.
Moreover, the Small Disadvantaged Business Program provides $50 billion in spending each year to small disadvantaged businesses. As a result, these businesses have more opportunities to subcontract and gain access to the mainstream economy.
There are several other federal programs that can provide assistance to small businesses. For example, the Department of Transportation’s Disadvantaged Business Enterprise (DBE) program helps disadvantaged businesses compete for federal-funded transportation contracts. Also, the Department of Veterans Affairs awards many set-aside contracts to veteran-owned small businesses.
Challenges to SDB status
The federal government is focused on increasing its efforts to help small disadvantaged businesses (SDBs) compete for government contracts. Increasing the number of SDBs is key to achieving the Federal government’s goal of at least five percent of all contract spending being awarded to small business concerns owned by socially and economically disadvantaged individuals by 2025.
To be certified as an SDB, a business must meet certain criteria. These criteria are established in the Small Business Administration’s 8(a) Business Development Program. They include ownership and control requirements and eligibility criteria.
In addition, applicants must submit financial statements and narratives. In some cases, companies have been challenged for size and SDB status. A false certification can result in a loss of a contract, prosecution, and de-certification.
A self-certification is an option for small disadvantaged businesses. However, it does not automatically qualify for an award of a subcontract. It is important to read the criteria for self-certification before making a decision.
In some cases, companies may be able to leverage existing data and technology tools to accelerate the fulfillment of the SDB contracting goals. For example, new consumption-based JOC support systems can provide up-front program and technology enablement, training, and other support.
A sole source award can also be a viable option for preparing an SDB for larger, more complex projects. Many agencies are using sole source awards as a “quick start” to a larger program. As an SDB, you are preparing for larger contracts by investing in significant data, software, and training.
SDBs are increasingly eligible for certain price benefits under new federal procurement regulations. The Small Disadvantaged Business Program ensures that $50 billion in annual spending is reserved for businesses owned by socially and economically disadvantaged individuals. This makes them a key player in agile innovation and localized service.
Targeting SDBs is a good business strategy for the federal government. It is also one of the most challenging federal procurement preference categories. Understanding the requirements and potential challenges can help businesses prepare for success.
Getting certified as an SDB is not easy. In fact, nine out of 10 applications are denied. While this may seem like an overwhelming task, many business owners self-certify in good faith.