8a Certification Eligibility - The $250,000 Adjusted Net Worth Requirement
Among the many 8a business development program eligibility requirements, the applicant for 8a Certification must have a personal adjusted net worth of less than $250,000 at the time of 8a Application Submission.
What is the definition of Adjusted Net Worth?
The algorithm used to determine Adjusted Net Worth for 8a Certification purposes is:
Adjusted Net Worth = Assets - Liabilities - [Equity in primary residence + value of ownership interest in applicant business
If the applicant is married and the asset or liability is jointly held, you split the value 50/50. If the applicant is married and lives in a community property state, you split all assets and liabilities 50/50 unless you have a transmutation or pre/post nuptial agreement that states otherwise.
How can I determine my Adjusted Worth?
You can easily determine your Adjusted Net Worth by using our online calculator by visiting [http://www.cloveer.com/anw.html].
What is required to be submitted within the 8a Application to prove the applicant's Adjusted Net Worth?
Each applicant, and their spouse, must submit a separate SBA Form 413, Personal Financial Statement. Along with the SBA Form 413 you must also submit statements for each asset or liability supporting the amounts reported. These statements cannot be any older than 30 days at the time of 8a Application submission.
Are there any ways to reduce an applicant's Adjusted Net Worth below the $250,000 threshold?
If you determine that the applicant's Adjusted Net Worth exceeds the $250,000 limit, there are a few ways to reduce it.
(1) Use assets (Cash, Savings, Stock/Bonds) of the applicant to pay down the mortgage on their primary residence.
(2) Use your credit card to increase your liability. Be careful here not purchase something on your credit card that causes an increase in your assets (e.g. boat, motorcycle, get a credit card loan).
(3) Invest the assets (Cash, Savings, Stocks/Bonds) of the applicant into the applicant business as additional paid in capital or equity. *In order for this to be allowed by the SBA, the applicant business must meet certain requirements or the SBA will determine that this additional investment into the business is not truly needed. For more information on this option, contact us.
*Important* You cannot transfer an asset out of the applicant's name within two years of the time your apply for 8a Certification for less than fair market value. Doing so will result in the full amount of the asset being reattributed back to the applicant.
Are there any upcoming changes to the Adjusted Net Worth requirement?
The SBA has proposed a change to its regulation 13 C.F.R 124.104(c)(2) where IRA and other retirement funds will not count toward an applicant's personal adjusted net worth, so long as the funds cannot be withdrawn early without significant penalty.
This proposed regulatory change would have a positive impact on many potential 8a applicants.
As of October 21 2010, the proposed change has not been approved but could possibly be by the end of 2010.
What is the definition of Adjusted Net Worth?
The algorithm used to determine Adjusted Net Worth for 8a Certification purposes is:
Adjusted Net Worth = Assets - Liabilities - [Equity in primary residence + value of ownership interest in applicant business
If the applicant is married and the asset or liability is jointly held, you split the value 50/50. If the applicant is married and lives in a community property state, you split all assets and liabilities 50/50 unless you have a transmutation or pre/post nuptial agreement that states otherwise.
How can I determine my Adjusted Worth?
You can easily determine your Adjusted Net Worth by using our online calculator by visiting [http://www.cloveer.com/anw.html].
What is required to be submitted within the 8a Application to prove the applicant's Adjusted Net Worth?
Each applicant, and their spouse, must submit a separate SBA Form 413, Personal Financial Statement. Along with the SBA Form 413 you must also submit statements for each asset or liability supporting the amounts reported. These statements cannot be any older than 30 days at the time of 8a Application submission.
Are there any ways to reduce an applicant's Adjusted Net Worth below the $250,000 threshold?
If you determine that the applicant's Adjusted Net Worth exceeds the $250,000 limit, there are a few ways to reduce it.
(1) Use assets (Cash, Savings, Stock/Bonds) of the applicant to pay down the mortgage on their primary residence.
(2) Use your credit card to increase your liability. Be careful here not purchase something on your credit card that causes an increase in your assets (e.g. boat, motorcycle, get a credit card loan).
(3) Invest the assets (Cash, Savings, Stocks/Bonds) of the applicant into the applicant business as additional paid in capital or equity. *In order for this to be allowed by the SBA, the applicant business must meet certain requirements or the SBA will determine that this additional investment into the business is not truly needed. For more information on this option, contact us.
*Important* You cannot transfer an asset out of the applicant's name within two years of the time your apply for 8a Certification for less than fair market value. Doing so will result in the full amount of the asset being reattributed back to the applicant.
Are there any upcoming changes to the Adjusted Net Worth requirement?
The SBA has proposed a change to its regulation 13 C.F.R 124.104(c)(2) where IRA and other retirement funds will not count toward an applicant's personal adjusted net worth, so long as the funds cannot be withdrawn early without significant penalty.
This proposed regulatory change would have a positive impact on many potential 8a applicants.
As of October 21 2010, the proposed change has not been approved but could possibly be by the end of 2010.
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