Do you think your business is struggling?
There are around 32 million small businesses in the United States today. These businesses have gone through one of the worst economic crises of our time. Now, they get to enjoy the fruits of their hard work as the economy stabilizes yet again.
However, some businesses don’t have a chance to enjoy this as much as others. If you think your business is still having a hard time while others around you seem not to, then you may be the owner of a small disadvantaged business.
What does becoming a disadvantaged business mean, though? How do you even know if you qualify to be the owner of a disadvantaged business enterprise? Read what we’ve prepared below to know the answers you need to get all the help you can for your business.
What Is a Small Disadvantaged Business?
Disadvantaged businesses are those owned by disadvantaged people. It doesn’t mean that only people with some sort of disability can own such businesses. In a legal sense, a disadvantaged person suffered racial, cultural, or ethnic prejudice in the past.
Many have faced biases and prejudice based on their race in American culture before. Among these groups are:
- Black Americans of African descent
- Hispanic Americans from South America or Europe
- Native Americans enrolled in State recognized tribes
- Asian-Pacific Americans from China, Japan, etc
- Subcontinent Asian Americans from Pakistan, Nepal, and such
Those suffering from economic disadvantages because of their race also get the SDB status for their business.
Why is this a big deal? Because of the country’s history of redlining. This barred non-white Americans from getting the same opportunities as others do.
Many laws are in place to prevent this, such as the Equal Credit Opportunity Act. However, individuals still face denials that hamper their financial growth. Their social growth may not be in danger, but this helps them ensure their financial security, as well.
Disadvantaged Business Enterprise
Under SDBs, there’s a specific subset called DBEs. These differ from SDBs as they list minority ownership to be enough to gain certification. The DBE criteria also specifically list women as one of those under social and economic bias.
It opens up opportunities for disabled business owners and those living in economically depressed areas. This will all depend on whether the governing legislation allows it, though. Read up on your local legislation to see if this applies in your area.
How Do You Become a Certified SDB?
To get a disadvantaged business certification, apply to the SBA. The Small Business Administration handles all matters regarding disadvantaged businesses. They also follow strict criteria to see if your business qualifies.
First, your business must be government-certified. You need the proper certifications and licenses to declare your business as official to qualify under SBA’s criteria. Also, the aforementioned disadvantaged individuals must own 51% or more of the business.
Speaking of ownership, the owners’ net worth must be under $250,000 to qualify. The business’s annual income must also not exceed $750,000 when applying to be an SDB. For DBEs, ownership standards are the same, but annual income limits itself to $1.3 million.
SDBs must also meet SBA’s small size standard when applying. Any business larger, in both size and affiliation, will fail its SDB application for certification.
You also have the option to self-certify your business. Doing this, however, subjects your business under intense scrutiny for any changes. It’s an easier and quicker option, but you can lose your certification any time by doing so.
Lossing Your Certification
Getting your certification doesn’t mean that you’re set for life. Your SDB status is still subject to change. The best-case scenario will be when your business is successful enough to stand on its own.
There are cases when you can lose your status without enjoying the full extent of certification, though. Such cases are rare, but it’s best to know what can challenge your status so you can avoid them.
One is using your spouse to get your SDB status. Listing your spouse as another owner of your business isn’t legal, but using your marital status for certification can be. You must be among the listed groups above lest the SBA charge you with false certification.
Not understanding the legal requirements for SDBs can also cost you your certification. The SBA isn’t as forgiving as you’d think with ignorance. Read up and know what legal obligations you have to avoid this from happening to you.
Do SDBs or DBEs Get Benefits?
Yes, an SBA certified small disadvantaged business can enjoy benefits brought about by the federal government. The government does this by promoting contracts unique to SDBs and DBEs to other businesses. Often, the federal government provides monetary incentives to encourage this.
They also encourage the subcontracting of SDBs. Businesses receive incentives up to 10% of the pay the SDBs get by doing so.
Some federal government contracts are only available to SDBs that fall under Section 8a of the Small Businesses Act. Section 8a participants are those who had a negative start with their business. These businesses must also follow the criteria mentioned above for qualification.
Section 8a participants can only enjoy the help they get for nine years. Businesses can no longer reapply for certification after the nine years pass. Regardless of the business’s financial status, they’re on their own from this point on.
Most see this as a big downside when considering becoming an 8a participant. However, there are tons of 8a benefits and opportunities that make it a worthwhile option.
Learn All You Need About Disadvantaged Businesses Today
Do all you can to keep your business from going down. Getting a disadvantaged business classification may provide you with the extra support you need to get you through these harsh times. Read all about it and see what you can do to keep your brand alive today!
Are you interested in learning more about how you can help your business thrive? Check out more of our posts to keep yourself updated on what’s going on in the industry. Read more of our guides to learn a thing or two today!