Alert
06.17.26
On June 11, 2026, the Small Business Administration (SBA) issued a proposed rule that would significantly change how individuals establish social disadvantage for purposes of the 8(a) Business Development Program. The 8(a) Program creates contracting preferences for small businesses owned and controlled by “socially and economically disadvantaged” individuals. The Small Business Act defines socially disadvantaged individuals as “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” For decades, SBA regulations provided for two alternative tests under which an individual could establish social disadvantage. First, members of certain designated groups—including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans and Subcontinent Asian Americans—were entitled to a rebuttable presumption of being socially disadvantaged. Second, individuals who were not members of one of the designated groups were permitted to submit personal statements supported by facts and evidence showing that he or she experienced social disadvantage.
In 2023, a federal district court in Ultima Services Corp. v. United States Department of Agriculture held that the SBA regulations’ rebuttable presumption violated the Fifth Amendment’s Equal Protection Clause and enjoined the SBA from continuing to use it. The SBA’s proposed rule states that it is attempting to bring the 8(a) Program’s eligibility rules into conformity with the Ultima decision, as well as the Program’s statutory requirements and goals.
The proposed rule would remove the rebuttable presumption and replace it with another group-based test. Under the proposed test, to qualify as a socially disadvantaged individual, a citizen will be required to show that: (1) during the individual’s lifetime, a governmental or private entity (including federal, state or local governments, universities or corporations) discriminated or was biased against the citizen’s racial, ethnic or cultural group, or favored another group of which the individual is not a member; and (2) such discrimination, bias or favoritism conferred material harm on the citizen. The citizen must self-certify that he or she was a member of the relevant group at the time of the discrimination and suffered material harm because of it. The citizen must also show evidence of the discriminatory action, policy, rule, regulation or practice. The proposed rule states that sufficient evidence may include materials on government, university and corporate websites; official policies and procedures; statements by officials; reports, audits or findings; court decisions; or administrative rulings.
The proposed rule also includes two examples of qualifying discrimination or bias, which are: (1) the prior iterations of the 8(a) Program’s eligibility rules that excluded the individual’s racial or ethnic group from the list of groups that are entitled to a rebuttable presumption; and, (2) “situations where the citizen's group was disadvantaged in college or university admissions decisions or otherwise discriminated against by a private entity in an unlawful manner.”
The proposed rule also removes the alternative non-presumptive test for social disadvantage altogether. As justification for its removal, SBA states that “its limited resources are best served through its proposed social disadvantage test because it does not require an individualized narrative of personal disadvantage that opens the program to abuses and unconstitutional discrimination.”
The proposed rule applies only to small businesses owned and controlled by individuals; it does not amend or affect the eligibility of entity-owned small businesses (i.e., those owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations or Community Development Corporations).
While the SBA states in its regulatory analysis that it does not intend to apply the new test to current 8(a) Program participants at their next annual review, it also expressly seeks comments on “reliance interests that would be implicated by these proposed changes.” There is also nothing in the 8(a) Program regulations, as currently written, that would prohibit the SBA from applying the new social disadvantage test to current participants during their annual reviews. Thus, SBA is not foreclosing the possibility of removing current participants for failure to meet the new test for social disadvantage.
SBA has not indicated when it intends to finalize and implement the proposed rule. Comments on the proposed rule must be received on or before July 13, 2026.