Small Business Administration Administrator Isabella Guzman speaks at the National Small Business Week event at the White House in Washington D.C., United States on May 1, 2023.
Celal Gunes/Anadolu Agency via Getty Images
In July, a federal judge ruled business owners cannot say their race is a disadvantage to receive funding.
It challenged the SBA’s 8(a) program, which awards money to socially disadvantaged businesses each year.
Now, business owners have to write an essay proving why their identity has been the basis of discrimination.
The Supreme Court struck down affirmative action in college admissions — but business owners are also feeling the heat.
In July, a federal judge in Tennessee issued a ruling that challenged the Small Business Administration’s 8(a) Business Development program, which was created for the government to give at least 5% of all federal contracting dollars to disadvantaged small businesses each year. The judge’s decision struck down a key provision of that program, saying that business owners could no longer say their race is the reason they have faced disadvantage in America.
The judge wrote in the July 19 opinion that “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.” The opinion gave an example that while some minority groups have faced “significant discrimination in a number of areas,” they are not considered “presumptively socially disadvantaged.”
This ruling prompted the SBA to change the process for small business owners to receive funds though the 8(a) program. According to the new guidance posted in late August, the SBA is now requiring all 8(a) participants to complete a “social disadvantage narrative” if they want to continue receiving awards through the program.
“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. “Additionally, the discrimination must have negatively impacted the individual’s entry or advancement in the business world.”
The narrative should indicate which identities are the basis of a social disadvantage and include a description of a time when bias or discrimination occurred because of that identity. The guidance said that “sufficient” narratives are typically three pages long and should include a who, what, where, why, when, and how the discrimination occurred.
This new guidance comes in the wake of the Supreme Court’s decision to strike down affirmative action in college admissions at the end of July, which means that colleges can no longer use race as a factor to determine whether a student should gain admission into the school. This has prompted a number of schools since the decision to change the way they admit students — particularly by removing legacy preference from their admissions processes, which have typically benefitted white and wealthy applicants.
Still, the ruling on the 8(a) program could signal legal challenges down the road for other programs that prioritize minority groups. Edward Blum, who was behind the Supreme Court case challenging affirmative action in college admissions, filed a lawsuit in early August against the Fearless Fund, which gives grants to Black, female entrepreneurs. He also sued two law firms that have fellowships aimed at promoting diversity.
It’s unclear if President Joe Biden’s administration will appeal the 8(a) ruling, and SBA Administrator Isabella Guzman said in a statement that “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.”