The Small Business Administration has imposed tough new rules on a program for socially and economically disadvantaged firms, despite opposition from some minority business groups.
The new regulations allow a disadvantaged firm to be eligible for program benefits for a maximum of five years. However, a firm may extend the benefits for two years after the five year limit, SBA Administrator Michael Cardenas said on Monday. Currently, the program has no eligibility limit.
The program, known as 8A, was intended to help disadvantaged firms build up profits and experience to allow them to enter the American business mainstream. However, it has been criticized by members of Congress for mismanagement and waste because few firms left the program and continued to receive noncompetitive government contracts, some as much as $131 million. Because these firms don't leave or graduate from the program, other firms can't enter.
Many minority business groups, opposed the program changes saying that five years isn't enough time for a firm, disadvantaged or otherwise, to become financial solid. Some critics of the new regulations have suggested firms be phased out according to their ability to be self-sufficient rather than being arbitrarily cut off.
"Because too many companies have stayed in 8A too long, many, many other eligible firms have been denied a chance to take part in 8A," Cardenas said. "Conservative estimates report that about 10,000 firms may be eligible for 8A but cannot obtain entry due to lack of program completions. This situation is just not fair."
Length of stay in the program will be determined by previous 8A contracts and how they have affected the company's growth, sales outside of the 8A program, the number of years they have been in the program, prior use of SBA grants to help buy capital equipment and the amount of SBA seed money used.