Regulation

ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR data is current as of January 25, 2018
Title 13 → Chapter I → Part 124 → Subpart A → §124.104
Title 13: Business Credit and Assistance
PART 124—8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS STATUS DETERMINATIONS
Subpart A—8(a) Business Development
§124.104 Who is economically disadvantaged?
(a) General. Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the
free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same
or similar line of business who are not socially disadvantaged.
(b) Submission of narrative and financial information. (1) Each individual claiming economic disadvantage must submit
personal financial information.
(2) When married, an individual claiming economic disadvantage must submit separate financial information for his or her
spouse, unless the individual and the spouse are legally separated. SBA will consider a spouse's financial situation in
determining an individual's access to credit and capital where the spouse has a role in the business (e.g., an officer, employee
or director) or has lent money to, provided credit support to, or guaranteed a loan of the business. SBA does not take into
consideration community property laws when determining economic disadvantage.
(c) Factors to be considered. In considering diminished capital and credit opportunities, SBA will examine factors relating to
the personal financial condition of any individual claiming disadvantaged status, including income for the past three years
(including bonuses and the value of company stock received in lieu of cash), personal net worth, and the fair market value of all
assets, whether encumbered or not. An individual who exceeds any one of the thresholds set forth in this paragraph for
personal income, net worth or total assets will generally be deemed to have access to credit and capital and not economically
disadvantaged.
(1) Transfers within two years. (i) Except as set forth in paragraph (c)(1)(ii) of this section, SBA will attribute to an individual
claiming disadvantaged status any assets which that individual has transferred to an immediate family member, or to a trust a
beneficiary of which is an immediate family member, for less than fair market value, within two years prior to a concern's
application for participation in the 8(a) BD program or within two years of a Participant's annual program review, unless the
individual claiming disadvantaged status can demonstrate that the transfer is to or on behalf of an immediate family member for
that individual's education, medical expenses, or some other form of essential support.
(ii) SBA will not attribute to an individual claiming disadvantaged status any assets transferred by that individual to an
immediate family member that are consistent with the customary recognition of special occasions, such as birthdays,
graduations, anniversaries, and retirements.
(iii) In determining an individual's access to capital and credit, SBA may consider any assets that the individual transferred
within such two-year period described by paragraph (c)(1)(i) of this section that SBA does not consider in evaluating the
individual's assets and net worth (e.g., transfers to charities).
(2) Net worth. For initial 8(a) BD eligibility, the net worth of an individual claiming disadvantage must be less than $250,000.
For continued 8(a) BD eligibility after admission to the program, net worth must be less than $750,000. In determining such net
worth, SBA will exclude the ownership interest in the applicant or Participant and the equity in the primary personal residence
(except any portion of such equity which is attributable to excessive withdrawals from the applicant or Participant). Exclusions
for net worth purposes are not exclusions for asset valuation or access to capital and credit purposes.
(i) A contingent liability does not reduce an individual's net worth.
(ii) Funds invested in an Individual Retirement Account (IRA) or other official retirement account that are unavailable to an
individual until retirement age without a significant penalty will not be considered in determining an individual's net worth. In
order to properly assess whether funds invested in a retirement account may be excluded from an individual's net worth, the
individual must provide information about the terms and restrictions of the account to SBA and certify that the retirement
account is legitimate.

(iii) Income received from an applicant or Participant that is an S corporation, limited liability company (LLC) or partnership
will be excluded from an individual's net worth where the applicant or Participant provides documentary evidence demonstrating
that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses
from the S corporation, LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be
used to reduce an individual's net worth.
(iv) The personal net worth of an individual claiming to be an Alaska Native will include assets and income from sources
other than an Alaska Native Corporation and exclude any of the following which the individual receives from any Alaska Native
Corporation: cash (including cash dividends on stock received from an ANC) to the extent that it does not, in the aggregate,
exceed $2,000 per individual per annum; stock (including stock issued or distributed by an ANC as a dividend or distribution on
stock); a partnership interest; land or an interest in land (including land or an interest in land received from an ANC as a
dividend or distribution on stock); and an interest in a settlement trust.
(3) Personal income for the past three years. (i) If an individual's adjusted gross income averaged over the three years
preceding submission of the 8(a) application exceeds $250,000, SBA will presume that such individual is not economically
disadvantaged. For continued 8(a) BD eligibility, SBA will presume that an individual is not economically disadvantaged if his or
her adjusted gross income averaged over the three preceding years exceeds $350,000. The presumption may be rebutted by a
showing that this income level was unusual and not likely to occur in the future, that losses commensurate with and directly
related to the earnings were suffered, or by evidence that the income is not indicative of lack of economic disadvantage.
(ii) Income received from an applicant or Participant that is an S corporation, LLC or partnership will be excluded from an
individual's income where the applicant or Participant provides documentary evidence demonstrating that the income was
reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. Losses from the S corporation,
LLC or partnership, however, are losses to the company only, not losses to the individual, and cannot be used to reduce an
individual's personal income.
(4) Fair market value of all assets. An individual will generally not be considered economically disadvantaged if the fair
market value of all his or her assets (including his or her primary residence and the value of the applicant/Participant firm)
exceeds $4 million for an applicant concern and $6 million for continued 8(a) BD eligibility. The only assets excluded from this
determination are funds excluded under paragraph (c)(2)(ii) of this section as being invested in a qualified IRA account.
[63 FR 35739, June 30, 1998, as amended at 76 FR 8254, Feb. 11, 2011; 81 FR 48580, July 25, 2016]
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