Summary

The U.S. Small Business Administration (“SBA”) published a proposed rule on June 11, 2026, that would reshape how individually owned small businesses establish social disadvantage for purposes of the 8(a) Business Development program. The proposed rule would eliminate the longstanding rebuttable presumption that members of certain designated racial and ethnic groups are socially disadvantaged. In its place, SBA proposes a single, race-neutral test requiring all applicants to show that a governmental or private entity discriminated against their clearly definable group and that the discrimination caused them “material harm.”

Critically, the proposed rule applies only to individually owned firms. Entity-owned 8(a) participants, including firms owned by Indian tribes, Alaska Native Corporations (“ANCs”), Native Hawaiian Organizations (“NHOs”), and Community Development Corporations (“CDCs”), are unaffected.

Comments on the proposed rule are due by July 13, 2026. Stakeholders may submit comments through regulations.gov under Docket No. SBA-2026-0133.

Key Takeaways

• The rebuttable presumption of social disadvantage for designated racial and ethnic groups would be eliminated for individually owned applicants.
• A new, uniform test would require all individual applicants to show that a governmental or private entity discriminated against or was biased against their clearly definable group and that this caused them “material harm” (defined as loss of access to or diminished opportunities for economic advancement).
• Current 8(a) participants are not immediately affected. SBA states it does not currently intend to apply the new test at annual reviews but has requested comments on this point.
• Entity-owned firms (tribal, ANC, NHO, CDC) are expressly excluded from the proposed changes.
• SBA’s examples of qualifying discrimination include unlawful programs, policies, or quotas—such as diversity, equity, and inclusion (“DEI”) programs, affirmative-action policies, and race-based quotas, as well as prior versions of § 124.103 that excluded an applicant’s group from the presumption.
• The comment period closes on July 13, 2026. Contractors and trade associations should act quickly if they wish to submit comments.

Background

The 8(a) Program and Social Disadvantage

The 8(a) Business Development program, codified at 15 U.S.C. § 637(a), authorizes SBA to enter into contracts with federal agencies and subcontract performance to small businesses owned by socially and economically disadvantaged individuals. Eligibility turns in large part on whether the applicant’s owner qualifies as “socially disadvantaged” under SBA’s regulations at 13 C.F.R. § 124.103.

Since 1986, SBA regulations have included a rebuttable presumption that members of specified groups—including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans—are socially disadvantaged. Individuals not belonging to a designated group could still qualify but were required to submit a detailed personal narrative and supporting evidence under a separate “non-presumptive” test at 13 C.F.R. § 124.103(c).

Legal Developments Leading to This Proposal

In July 2023, the U.S. District Court for the Eastern District of Tennessee held in Ultima Services Corp. v. U.S. Department of Agriculture that the rebuttable presumption violated the equal-protection component of the Fifth Amendment’s Due Process Clause. The Court enjoined SBA from applying the presumption, and since then, SBA has evaluated all individually owned 8(a) applicants under the non-presumptive standard.

On November 25, 2025, the U.S. Department of Justice (“DOJ”) formally advised the Speaker of the House that the rebuttable presumption is unconstitutional and that DOJ would no longer defend it in litigation. SBA has stated in the proposed rule that it agrees the presumption is unconstitutional.

The Proposed Rule: Four Key Changes

SBA proposes four targeted changes to 13 C.F.R. § 124.103:

1. Statutory Alignment. Revise the regulation to align with the statutory definition of social disadvantage in 15 U.S.C. § 637(a)(5) and 15 U.S.C. § 631(f)(1)(B). 15 U.S.C. § 637(a)(5) defines “socially disadvantaged individuals” as “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” This is very similar to the definition of “socially disadvantaged individuals” found in 13 C.F.R. § 124.103(a).
2. New Uniform Test. Replace the existing presumptive and non-presumptive tests with a single, race-neutral test under which any U.S. citizen may establish social disadvantage. Under the new proposed § 124.103(b), an applicant must show that, during the applicant’s lifetime, a governmental or private entity in the United States discriminated against or was biased against a “clearly definable racial, ethnic, or cultural group” of which the applicant is a member (or favored a group of which the applicant is not a member)—and that such conduct caused the applicant “material harm.” Notably, the proposed rule introduces the concepts of “favoritism” and “favored groups” as independent bases for a social disadvantage claim. It is not clear what evidentiary standard the SBA will apply when evaluating whether a particular group is or was “favored.”
3. Elimination of Non-Presumptive Track. Remove the current non-presumptive test at § 124.103(c), making the new § 124.103(b) the sole pathway to establish social disadvantage.
4. Removal of Group-Inclusion Process. Eliminate the process by which SBA could designate additional groups for the rebuttable presumption, as that process is no longer relevant.

The Proposed Test in Detail

Under the proposed rule, an applicant for the individually owned 8(a) program must demonstrate three elements:

• Group Membership. Self-certify membership in a “clearly definable racial, ethnic, or cultural group” at the relevant time.
• Discrimination, Bias, or Favoritism by an Entity. Submit evidence that a governmental or private entity—including federal, state, or local government bodies; universities; or corporations—discriminated against or was biased against the applicant’s group, or favored another group.
• Material Harm. Self-certify and provide evidence that the entity’s discrimination, bias, or favoritism caused the applicant a “material harm”—defined as “loss of access to or diminished opportunities related to economic advancement.”

Qualifying examples of discrimination identified in the proposed rule include:

• Unlawful DEI programs or policies;
  • Unlawful affirmative action programs or policies;
  • Race-based quotas, set-asides, or hiring targets;
  • Policies or programs that favored some groups over others on the basis of race;
  • Prior iterations of § 124.103 that excluded the applicant’s group from the rebuttable presumption; and
  • Discrimination by private entities or in admissions under cases such as Students for Fair Admissions, Inc. v. President and Fellows of Harvard College and Ames v. Ohio Department of Youth Services.[1]

Acceptable evidence may include government/university/corporate websites; policies, regulations, guidance, or procedures; statements by officials; reports, audits, or findings; court decisions; and administrative rulings.

Practical Implications

Current 8(a) Participants

SBA states that it does not currently intend to apply the new test to existing 8(a) participants at their next annual review. However, SBA has explicitly requested comments on the reliance interests of current participants, leaving open the possibility that the final rule could include a recertification requirement or transitional standard. Current participants should closely monitor the rulemaking process and strongly consider submitting comments addressing transition provisions, treatment of pending applications, and any evidentiary burden that should apply to firms already in the program.

Prospective Individually Owned Applicants

For small businesses planning to apply for 8(a) certification, the proposed rule sends an important signal. Although SBA has already been applying the non-presumptive standard to all individually owned applicants since the Ultima Services injunction, the proposed rule affirmatively encourages applicants to apply under the new uniform framework. Rather than relying on membership in a presumptive group, all applicants would need to identify and document specific acts of discrimination or bias by a governmental or private entity and connect those acts to material economic harm. Prospective applicants should begin considering:

• What governmental or private entity discriminated against or favored a group?
• What evidence (policies, regulations, court decisions, audit reports) is available to demonstrate the entity’s actions?
• How did the discrimination cause loss of access to or diminished opportunities for economic advancement?

Entity-Owned Firms

The proposed rule expressly states that it does not affect eligibility for entity-owned small businesses, including those owned by Indian tribes, ANCs, NHOs, or CDCs. Entity-owned firms need not take any action with respect to this rulemaking, though they may wish to monitor developments to ensure the final rule maintains this carve-out.

Open Questions to Watch

The proposed rule raises several interpretive questions that SBA will likely clarify through the comment process or subsequent guidance:

• How narrowly or broadly will SBA define “clearly definable racial, ethnic, or cultural group”?
• What quantum of evidence will satisfy the “material harm” standard? Will self-certification alone suffice, or will SBA require documentary corroboration of economic impact?
• How will SBA evaluate the scope of “governmental or private entity”? Does a single employer’s discriminatory practice suffice?
• Will any transition rules apply to firms whose 8(a) applications are pending at the time the final rule takes effect?
• Could SBA apply the new standard retroactively at annual reviews, notwithstanding its current stated intent?
• What does the qualifier “unlawful” mean in SBA’s examples of qualifying discrimination? The proposed rule references “unlawful” DEI programs, affirmative-action policies, and race-based quotas, but does not clarify whether an applicant may satisfy this element merely by alleging that such programs are unlawful, or whether a prior judicial or administrative determination of unlawfulness is required. Absent such a determination, it is unclear whether SBA will be making independent, first-instance findings that particular private-sector DEI programs or policies are “unlawful.”

Contractor Next Steps

We recommend that affected contractors and stakeholders consider the following actions:

• Submit comments by July 13, 2026. Comments may be submitted through regulations.gov under Docket No. SBA-2026-0133 or RIN 3245-AI75, or by mail to SBA’s Office of Government Contracting and Business Development, 409 Third Street SW, Washington, DC 20416.
• Comment on transition rules. Current 8(a) participants and pending applicants should address how SBA should treat firms that relied on the prior presumption, whether a grace period should apply, and what evidentiary showing (if any) should be required of firms already in the program.
• Address the “material harm” standard. Commenters should provide input on what level of documentation should be required to establish material harm, and whether the self-certification model provides sufficient accountability.
• Assess your evidence position. Prospective applicants should begin assembling documentary evidence that may support their applications under the new standard, including court decisions, governmental policies, audit reports, or other documentation of institutional discrimination.
• Monitor for SBA guidance. SBA will likely issue additional guidance or FAQ material clarifying how it intends to apply the new test. Contractors should monitor for final-rule developments and any interim processing guidance.

Source

U.S. Small Business Admin., Reforms to Remove SBA’s 8(a) Program’s Rebuttable Presumption of Social Disadvantage for Individually Owned Firms Only; Reforms Do Not Impact Entity-Owned Firms, Proposed Rule, Docket No. SBA-2026-0133, RIN 3245-AI75 (scheduled for publication June 11, 2026), available at https://www.federalregister.gov/d/2026-11765.