Business Owners Of Color Must Now Write Essays Proving ‘Social Disadvantage’ To Receive SBA 8(a) Loans

Business owners of color seeking Small Business Administration (SBA) loans can no longer say their race is a disadvantage without a three-page letter to back it up.

According to the Insider, applicants must complete a “social disadvantage narrative” to receive funding through the SBA’s 8(a) Business Development program.

SBA’s 8 (a) Program

The 8(a) Business Development program is a robust nine-year program created to help firms owned and controlled by socially and economically disadvantaged individuals.

Businesses participating in the program receive training and technical assistance designed to strengthen their ability to compete effectively in the American economy.

The SBA partners with federal agencies to promote maximum utilization of 8(a) program participants to ensure equitable access to contracting opportunities in the federal marketplace.

The federal government’s goal with the program was to award at least 5% of all federal contracting dollars to small disadvantaged businesses each year.

What Has Happened?

In July, a federal judge in Tennessee issued a ruling challenging the SBA program, which led to a decision to strike down a key provision.

It was announced that business owners could no longer say their race is why they faced disadvantages in America.

“The determination of which groups of Americans are presumptively disadvantaged compared with others necessarily leads to such a determination being underinclusive because certain groups that could qualify will be left out of the presumption,” read the opinion filed by the judge.

The opinion gave an example that while some minority groups have faced significant discrimination in several areas, they should not be considered “presumptively disadvantaged”.

The ruling prompted the SBA to change the process small business owners have to go through to receive funds.

What Will Happen Now?

From August, all participants are now required to complete a “social disadvantage narrative” if they want to continue to receive monetary awards through the program.

According to guidelines, a “sufficient” narrative is at least three pages long and includes a “who, what, where, why, when, and how the discrimination occurred.”

“SBA must determine that the discrimination or bias experienced by an individual is chronic, substantial, and has occurred within American society (not another country),” the guidance said.

“The discrimination must have negatively impacted the individual’s entry or advancement in the business world.”

In a statement, SBA Administrator Isabella Guzman assured that the current administration is doing all it can to support small businesses during this time.

“The SBA and Biden-Harris Administration remain committed to supporting this crucial program and the small business owners who have helped drive America’s strong economic growth,” Guzman said.

A Step Backwards For Diversity

The new guidance comes following the U.S. Supreme Court’s ruling against affirmative action, colleges and universities considering race in their admissions process.

Lawsuits against Harvard and the University of North Carolina had challenged its use in college admissions; Students for Fair Admissions argued that Harvard’s admissions policies discriminated against Asian American applicants.

The decision meant that colleges could no longer use race to determine whether a student should gain admission into the school.

Following that, conservative group American Alliance for Equal Rights, led by Edward Blum, filed lawsuits against law firms Perkins Coie and Morrison Foerster, challenging their diversity fellowships.

Blum also brought a lawsuit against Fearless Fund, which supports women of color who own small businesses, despite venture capital firms in 2022 deploying $288 billion, with women of color founders only receiving 0.39% of the total funding.