Why are broker dealers ineligible to participate in the 8(a) program?

If you are labeled as a broker, but do not feel that you are, this article will help you understand how to get approved for the 8(a) certification and other programs by taking some important precautionary steps.

SBA wants success to come to every 8(a) approved firm. Making sure they will be successful is why the approval process is stringent. Based on the Federal Acquisition Regulation code FAR 124.08 “Brokers are ineligible to participate in the 8(a) BD program. A broker is a concern that adds no material value to an item being supplied to a procuring activity or which does not take ownership or possession of or handle the item being procures with its own equipment or facilities”.

Recently we were hired by two separate clients who happen to be in the same line of work, distributors of office products. One was applying for the 8(a) certification, while the other for Metro’s Disadvantage Business Enterprise (DBE) Certification. In both instances, client did not feel that they were brokers as defined by the SBA, but rather a dealer. A broker is a pass through entity which at times makes commission paid to them by the manufacturer or distributor. In this case, both parties made neither. The only flaw they possessed was that they did not stock inventory. This is of course the most important rule of being a broker, that they don’t keep stock of their products.

The office supply industry is a multi billion dollar industry and both companies receive orders from all over the United States and their customers demand delivery promptly, sometimes the next day. If they were to stock inventory, take order from customers thousand of miles away and deliver the next day, Small Businesses in this particular industry would not exist. In order for them to be able to do this, they will need to have multiple warehouses across the nation and stocking hundreds of thousand of dollars worth of daily inventory. This would make perfect sense for a company such as Hewlett Packard or Amazon, but most definitely not a Small Business.

We were able to get both companies approved. We did this by proving to each agency, that keeping that level of inventory was not viable. Thus, we also provided the SBA and Metro with current levels of inventory held as well as receipts and invoices of purchase orders made. In addition, we provided the shipment charges made by the clients proving that their products were housed at the manufacturers warehouse and later shipped to the customer along with pictures of the inventory etc.

When applying for any type of certification, particularly the ones mentioned above, and if your business may be labeled as a broker but you clearly are not, an explanation will be needed. It is important to answer and questions they may have with actual data proving you are not a broker.

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Paul Mazbanian CEO Small Business Community Consultants, Inc.
Paul Mazbanian
Small Business Community Consultants, Inc.