Recognizing that our country -- our “team,” if you will -- is stronger when all our players are on the field and playing to their full potential, our federal and some state governments have developed programs to help disadvantaged entrepreneurs get started on the path of business ownership. In the last issue of The Construct we talked about the Historically Underutilized Business (“HUBZone”) Program. This quarter we offer you information on programs helping women, minorities and veterans start and maintain their own business ventures.

Businesses certified as a Disabled Veteran Business Enterprise, Minority-owned Business Enterprise or Women-owned Business Enterprise are targeted for development by federal and state government in programs paving the way for participation by those who had before been limited in their opportunities to participate in lucrative contracts. The federal government has standards by which a business may be classified as a Small Disadvantaged Business (SDB). A designation as an SDB allows companies to take advantage of significant favorable “price evaluation adjustments” that can mean that the SDB would not have to be the lowest bidder to win a contract.

The Small Business Administration (SBA) is one of the government entities that certify that small businesses meet the eligibility criteria to receive these advantages. The program also provides credits for prime contractors who subcontract to SDBs.

To qualify as an SDB, a business must be owned and controlled by one or more socially and economically disadvantaged persons. They must show a minimum of 51% ownership, the disadvantaged person must actually control and have expertise in the business, and that person must control the daily management and operations of the company. The owner of the business must also certify that he or she has a personal net worth of less than $750,000, excluding the value of the ownership in the business and the owner’s primary residence.

Under the SBA, the SDB definition presumptively includes African-Americans, Asian-Americans and Native-Americans. Women and handicapped people can qualify if they show that they are, in fact, disadvantaged using the above criteria.
 
To be classified as an existing “small” business, the gross revenues of the business over the course of three years must fall below certain dollar amounts.

The United States Department of Transportation (DOT) is another agency of the federal government with a well-developed policy of, and procedure for, helping small businesses owned and controlled by socially and economically disadvantaged individuals. That agency uses the term Disadvantaged Business Enterprises (DBEs) to describe those businesses. The DOT distributes more than $20 billion annually through its various operating administrations to finance thousands of projects throughout the country.

About 85% of that money is in the form of construction grants given to state highway and transportation agencies. The rest is given in support of local mass transit programs. The laws establishing these programs require the DOT to ensure at least 10% of the funds it authorizes for highway and transit assistance programs be spent with DBEs.

Congress enacted the first DBE laws in 1983. Women were added to the definition of the groups presumed to be disadvantaged in 1987. DOT certification of disadvantaged entrepreneurs does not have the same income restrictions present for SBA certification, where the SBA requires that the qualifying owner, or each of the qualifying owners, certify that they have not made more than $300,000 in personal income in any of the past three years.

States that receive DOT funding for highway and transportation projects, which includes every state, are required to establish goals for disadvantaged entrepreneurs to be eligible to participate in their DOT-assisted contracts. The states audit their transportation contracts throughout the year and establish specific subcontracting goals. At the end of the year the contracts and subcontracts awarded to DBEs should be consistent with the overall goal.

There are also independent certification agencies that join the SBA and state departments of highways and transportation to oversee the certification process. Some private certification agencies operate regionally to conduct investigations of certification applications that might otherwise be slightly delayed if one would rely on the state or federal agency to complete the process. They get information about disadvantaged business applicants through visiting the offices of the business, interviews, reviews of licenses, stock ownership, bonding capacity, resumes of the principal owners, and all other available resources.

It is through diligent investigations and stringent compliance with eligibility requirements that these programs maintain their integrity.

There are many ways to become certified as a Small Disadvantaged Business, a Disadvantaged Business Enterprise, a Minority-owned Business or a Woman-owned Business. While the goal of the federal government is to create a process that an entrepreneur can navigate without professional assistance, please feel welcome to contact Spilman, Thomas & Battle to help you with the application process, and to help set up your business under the proper structure.