The End of Affirmative Action at Colleges Is Set to Hit the SBA Next
A federal judge struck down a provision of the Small Business Administration's 8(a) loan program that has helped socially disadvantaged business owners for decades.
Brit Morse
Photo: Getty Images
Small business owners looking to access the U.S. Small Business Administration's 8(a) loan program will have to face new hurdles.
A federal judge in Tennessee recently struck down a provision of the program, which has helped socially disadvantaged business owners win U.S. government contracts for nearly five decades. Minority business owners who are Black, Hispanic, Asian, or Native American can no longer assert that their race alone puts them at a disadvantage. To qualify for the program, they will have to submit an essay explaining how their race has negatively impacted their success. Business owners who wish to remain in the program will also have to submit the same narrative. Once in the program, 8(a) certifications can last for a maximum of nine years.
The 8(a) loan program was designed to open a pipeline to billions in government contracting dollars for historically disadvantaged groups and to award at least 5 percent of all federal contracting dollars to small disadvantaged businesses each year. However, it was ruled in the case Ultima Services Corp. v. U.S. Department of Agriculture that it violates a federal contractor's Fifth Amendment right to equal protection.
The decision could cut off access to funds for roughly 4,800 business owners who currently participate in the program. Of those, 4,000 business owners were accepted based on racial or cultural social disadvantage, according to the SBA. In the 2020 fiscal year, 8(a) firms were awarded $34 billion in federal contracts, including $9.3 billion in 8(a) set-aside awards and $11.1 billion in 8(a) sole-source awards, according to the Federation of American Scientists, a nonprofit think tank.
The move is one of the first to affect the private sector in the wake of the Supreme Court's decision to upend affirmative action in June. Since then, conservative groups across the country have taken action, filing lawsuits against venture capitalist groups, grant programs, and company DEI efforts aimed at supporting various racial and cultural groups, dubbing them unconstitutional.
To qualify for the program, business owners had to prove that their company was at least 51 percent owned and controlled by U.S. citizens from certain socially and economically disadvantaged groups, as specifically identified by the SBA. (Individuals in other groups could apply given they could prove their social disadvantage with a preponderance of the evidence.) Individuals also had to have a personal net worth of $850,000 or less, adjusted gross income of $400 thousand or less, and assets totaling $6.5 million or less. They also have to demonstrate good character and that they have been in business for at least two years, according to the SBA.
While it's still possible for the injunction to be lifted if the district court's order is successfully appealed, businesses in the meantime must comply with these new rulings.
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