Qualifying to be a Small Diverse Business

Small Diverse Business Owner

If your business qualifies, Small Diverse Business certification can provide benefits under both Pennsylvania and federal law. Certification in Pennsylvania is a straightforward process that can be accomplished simultaneously with federal certification.  A business can become certified as a Small Diverse Business (or, under federal law, “Small Disadvantaged Business”) through either public or private certification.  Both options have unique benefits.

Public certification, from either Pennsylvania or the federal government’s Small Business Administration (SBA), can provide direct benefits to the business, and can be especially beneficial for small businesses that either bid for government work or provide subcontracting services to businesses who do so.  For example, the federal government attempts to award at least 5% of all federal contracting dollars to Small Disadvantaged Businesses each year. Additionally, in Pennsylvania, when a contractor submits a bid for a government contract, the bid is scored more favorably if the contractor commits to subcontract with Small Diverse Businesses to complete the work.

Private certification, through a private certification organization, provides qualified small businesses with networking opportunities that could lead to partnerships or relationships with other Small Diverse Businesses, educational opportunities, and access to contracting opportunities.

Certification Process

To become certified as a Small Diverse Business in Pennsylvania, the business seeking certification must register to do business within Pennsylvania, self-certify as a Small Diverse Business by meeting certain requirements. Currently they include independent ownership, employing less than 100 full-time equivalent employees, and having three-year average gross revenues that do not exceed $38.5 million. The business then becomes verified as a Small Diverse Business through an approved third party.  The approved third parties include the SBA as well as certain private certification organizations.  As such, if a small business is interested in obtaining verification as a Small Diverse Business in Pennsylvania, it can simultaneously seek verification through the SBA, since SBA verification will satisfy one of the requirements for verification in Pennsylvania.

SBA Certification Criteria

Verification from the SBA requires that the business meet specific criteria. Currently the criteria includes being at least 51% owned and controlled by U.S. citizens who are economically and socially disadvantaged, whose personal net worth is less than $750,000, whose average adjusted income for 3 years is less than $350,000, who own $6 million or less worth of assets, and who manage the business’s day-to-day operations and make long-term decisions, among other things.  If the business qualifies, it applies online and submits certain documents related to the business and its owners, such as corporate organizational documents, financial statements, federal tax returns, loan documents, and the disadvantaged individual’s resume and personal income tax return.

Private Certification Criteria

The requirements and application for private certification through most private companies are similar to the requirements and application for certification through the SBA.  The business must meet similar requirements and must submit much of the same documents required by the SBA.  A site visit may also be required, depending on the certifying company.

If you would like assistance in obtaining Small Diverse Business certification for your business or would like more information on this topic, use the contact form below or do not hesitate to reach out to any one of the attorneys in our Corporate, Business and Banking Department.

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