Socially and economically disadvantaged businesses are those owned by individuals who face obstacles due to race, ethnic origin, culture, and economic barriers.
What are socially and economically disadvantaged businesses?
Not every aspiring business has access to the same resources. If you are forming a business and looking for resources or funding, or if you are establishing a specific business identity (such as a woman-owned business or a minority-owned business), you may be eligible for assistance under the Small Business Act. This means you may be prioritized when it comes to securing government contracts and working with organizations like the National Minority Supplier Development Council.
How do socially and economically disadvantaged businesses operate?
The Small Business Act was passed in 1953 to assist small businesses and ensure they receive a “fair share” of government contracts and surplus property sales. It has been updated several times since, but its primary mission remains the same.
The federal government defines “socially and economically disadvantaged individuals” under the Small Business Act (15 USC 637) as follows:
- Socially disadvantaged individuals are those who have faced racial, ethnic, or cultural bias because of their identity as members of a group, regardless of their individual characteristics.
- Eeconomically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to restricted access to capital and credit compared to others in the same business area who are not socially disadvantaged. In determining the degree of diminished credit and capital opportunities, the administration must consider, but is not limited to, the assets and net worth of that socially disadvantaged individual.
Small Business Act concerns and qualifications apply only to socially and economically disadvantaged citizens of the United States, or to those who have legally obtained permanent residency in the United States.
Specifically included are: African Americans, Hispanic Americans regardless of race or culture or origin, Asian Americans, Pacific Islanders, Subcontinent Asian Americans, Native Americans including Native Hawaiians and Alaska Natives, and women.
The law also states that other minority individuals and other individuals who have been considered disadvantaged may also be eligible for assistance.
While the Small Business Administration adheres to the definitions in the law, it still requires all applicants to prove that they meet the definition. In other words, being socially disadvantaged does not automatically prove the absence of economic disadvantages, so you should be prepared to provide financial statements along with general information about your business to prove that you own a disadvantaged economic business.
Women-Owned Businesses
A woman is assumed to be economically disadvantaged if she has a personal net worth of less than $750,000, and her average adjusted gross income over the last three years does not exceed $350,000, and the fair market value of all her assets (including her primary residence and business interest) does not exceed $6 million.
For a business to be considered a women-owned business with economic disadvantage qualification, the woman must own at least 51% of the business and/or it must be managed by one or more women who are U.S. citizens (born or naturalized). Other organizations may have slightly different definitions of “women-owned.”
Women-owned businesses can obtain certification through the Women’s Business Enterprise National Council (WBENC).
Advantages of Being Socially and Economically Disadvantaged Business
If you have great connections and resources, you may think that being recognized as a woman-owned or minority-owned business is not necessary. However, before you decide to forego searching for resources, associations, programs, or certifications, you should know that being officially recognized as a woman-owned or minority-owned business has its advantages.
It may
This characteristic helps you qualify for government contracts (federal, state, and even local) that may be difficult to qualify for due to a lack of connections like those who have more advantages. Government contracts can provide income and stability.
Takeaway points:
- Socially and economically disadvantaged businesses are those owned by individuals who have faced barriers due to race, ethnicity, culture, or lack of capital.
- If you are forming a business and looking for resources or funding or establishing a particular business identity, you may qualify for assistance under the Small Business Act.
- The federal government defines “socially and economically disadvantaged individuals” under the Small Business Act, including socially disadvantaged individuals who have faced racial or ethnic bias or cultural bias, and economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been restricted due to reduced capital and credit opportunities.
- Women-owned businesses may be eligible for certification through the National Women’s Business Council.
- Being a socially and economically disadvantaged business can help you qualify for government contracts.
Thank you for reading the article, and we hope you found it beneficial.
Source: https://www.thebalancemoney.com/definition-of-socially-economically-disadvantaged-3515743
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