SBA RULE MODIFCATIONS UPDATE GOVERNNING 8A FIRMS
There have been several updates to the rules governing the Small Business Administration’s (SBA) 8(a) Business Development Program. These changes are designed to provide more flexibility and support for small businesses participating in the program.
Below is a summary of some of the key changes:
- Increased eligibility for certain small businesses: The SBA has increased the maximum net worth and income thresholds for eligibility in the 8(a) Specifically, the net worth threshold has been increased from $750,000 to $1.5 million, and the income threshold has been increased from $350,000 to $400,000 in 2022.
- New rules for economic disadvantage: The SBA has updated its rules for determining economic disadvantage, which is a key eligibility requirement for the 8(a) program. The new rules allow for a more nuanced analysis of an applicant’s financial situation, including factors such as income, assets, and liabilities. This change is designed to ensure that more small businesses have access to the program.
- Increased mentor-protégé opportunities: The SBA has expanded its mentor-protégé program, which allows small businesses in the 8(a) program to partner with larger, more established companies. The new rules allow for more flexibility in the types of businesses that can participate in the program and also provide additional opportunities for joint venture agreements.
- Changes to joint venture requirements: The SBA has updated its rules governing joint venture agreements between 8(a) participants and other businesses. The new rules require that the 8(a) participants be the managing partner in the joint venture and also provide more guidance on how profits and losses should be distributed.
- New rules for program participation: The SBA has implemented new rules that require 8(a) participants to meet certain performance benchmarks in order to remain in the program. Specifically, participants must meet certain revenue and job creation targets in order to continue receiving benefits from the program. The Small Business Administration (SBA) has implemented new rules as of 2021 that require 8(a) program participants to meet certain performance benchmarks in order to continue receiving benefits from the program. These performance benchmarks are designed to ensure that small businesses in the program are making progress towards their long-term goals and are contributing to the overall success of the program.
- Under the new rules, 8(a) program participants must meet certain revenue and job creation targets in order to remain in the program. Specifically, the SBA requires participants to achieve at least $500,000 in annual revenue for their third year in the program and at least $750,000 in annual revenue for their fourth and fifth years in the program. Participants must also create and maintain at least one job for each $75,000 in 8(a) program funding that they receive.
In addition to these performance benchmarks, the SBA also requires 8(a) participants to submit annual business plans and financial statements. These reports are used to evaluate the progress of the participant and to ensure that they are on track to meet their long-term goals.
If a participant fails to meet the performance benchmarks or fails to submit the required reports, the SBA may terminate their participation in the program. This termination can have serious consequences for the participant, including the loss of access to 8(a) program benefits and the loss of valuable relationships with program mentors and partners.
These are just a few of the key changes to the SBA’s 8(a) program in 2021-2022. Small businesses interested in participating in the program should consult with the SBA or a qualified advisor to ensure that they understand the eligibility requirements and other program rules.
Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended or written by the practitioner to be used and cannot be used by the taxpayer to avoid penalties.
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