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What are Small Business Set-Asides for Government Contractors?

Contract Financing

By Dane Panes

June 29, 2022

Government contracts can be hard to procure. But as a small business owner, your chances of winning a government contract are higher than you think. The government issues approximately $500 billion worth of government contracting opportunities for private sectors. This means that there’s a lot of work available to businesses – large or small.

The Small Business Administration (SBA) is a branch of the federal government that assist small businesses and help them effectively compete in the American economy. They work with various federal organizations to ensure that small businesses have a chance to compete against larger companies for prime government contracts called set-asides.

To know more about set-aside government contracts, read on.


What are Set Aside Contracts?

Small business set-asides refer to government contracts exclusively given or granted to small businesses. Congress has mandated that 23% of the 500 billion government contracting dollars must go towards eligible small businesses to lessen competition and increase their chances of securing a government contract.

Set-aside contracts can be classified into two: competitive set-asides or sole-source set-aside contracts.

In competitive set-aside contracts, two or more businesses must submit a bid for the government contract. The company that offers the best bid gets to work on the project. Sometimes, these contracts may only be exclusive to small businesses that have previously participated in SBA contracting assistance programs.

On the other hand, sole-source set-aside contracts may or may not involve a bidding process. The buyer (i.e., the government) can choose which supplier they want to work with directly, or they restrict businesses that can submit a bid on the project.


SBA Government Assistance Programs

Some set-aside contracts are allocated exclusively to businesses that participated in government contracting assistance programs offered by the SBA. If you’re interested in pursuing government contracting and your business falls under these socioeconomic classifications, you may be eligible for these programs.

1. SBA 8(a) Business Development Program

The SBA 8(a) program is a nine-year program designed to train and assist small businesses in obtaining prime government contracts. The main goal of SBA’s 8(a) program is to help small, socially and economically disadvantaged companies gain a foothold in the American economy through government contracting opportunities.

The program is divided into two parts: a four-year developmental stage and a five-year transition stage. 

To qualify for the SBA 8(a) Business Development Program, your business must meet the SBA’s definition of a small business (check out their Size Standard Tool). Aside from that, your company must qualify as a Small Disadvantaged Business (SDB). This means that 51% of the business must be owned by a socially and economically disadvantaged U.S. citizen.

*Note: To be considered a socially and economically disadvantaged small business owner, you must be an individual who experienced prejudice or any disadvantages due to your race, ethnicity, sex, culture, or lack of capital.

2. SBA HUBZone Program

The Historically Underutilized Business Zone (HUBZone) Program is geared toward helping small businesses in underrepresented geographical areas secure government contracts. The goal is to create jobs and improve the economy in the HUBZone.

Before you can participate in the HUBZone program, your business must meet the following requirements as mandated by the SBA:

  • The business must be located within the HUBZone area specified by the SBA. 
  • 35% of the company’s employees must reside in the HUBZone area. 
  • The business owner must be a member of the Community Development Corporation, agricultural cooperative, Alaska Native Corporation, or part of the Indian tribe.  

The government awards 3% of the federal contracting dollars to businesses under the HUBZone program.

3. Women-Owned Small Business Program

Approximately 5% of the federal contracting budget is awarded to women-owned businesses in the United States. The Women-Owned Small Business Program (WOSB), as the name implies, is designed to help small women-owned firms access government contracting opportunities. The goal of WOSB is to eradicate the historic inequality in work opportunities between men and women.

To qualify for the WOSB Program, at least 51% of the business must be owned by a woman. The business owner must have less than $750,000 net worth and a maximum adjusted income of no more than $350,000. 

If you’re eligible for the WOSB Program, you might also qualify for the Economically Disadvantaged Women-Owned Businesses (EDWOSBs). However, many usually skip the latter because they’re unfamiliar with the requirements. You can check out SBA’s Office of Entrepreneurial Development’s resource page to know more about women-owned SBA programs.

4. Veteran-Owned Small Business Contracting Opportunities

Government contracting assistance is also available for retired military servicemen in the form of Veteran-Owned Small Business and Service-Disabled Veteran-Owned Small Business Programs. The government has dedicated 3% of government contracting dollars to businesses under the program.

Businesses that are eligible for the Veteran-Owned Small Business program can also qualify for the Service-Disabled Veteran-Owned Small business program. However, they may be required to submit additional documents or prove that they sustained a service-related injury before they can qualify for the latter. 

Where Can You Find Small Business Set-Asides?

If you meet the SBA’s definition of a small business along with the SBA’s unique program requirements, you can start looking for contracting opportunities. Federal organizations usually post set aside contracting opportunities through their several databases outlined below.

  • System Award Management (SAM). SAM.gov is the biggest government contracting database the SBA runs. To access the list of government contracts, you’ll need to register your business and create a profile. Federal organizations usually use your SAM.gov profile to assess whether or not you’ll be able to provide the goods or services they need. That said, it would be wise to invest some time into building your SAM.gov profile and make it look appealing to government contractors. 
  • Dynamic Small Business Search (DSBS). The Dynamic Small Business Search (DSBS) is another database federal agencies use to search for potential government contractors. Businesses may also use the database to find subcontractors or connect with other companies for future projects. You’ll also need a SAM.gov profile to get into the Dynamic Small Business Search.

The Bottom Line

Government contracting can be a complicated process. But considering the government contracting dollars available to small businesses, those who pass on the opportunity will surely be missing out on a lot. 

There are a lot of assistance programs and contract financing opportunities available to you if you’re looking to enter the world of federal contracting. As long as you can meet the specific requirements for the programs, you’ll have better chances of qualifying for set-aside government contracts. 

About The Author

Dane Panes

Dane Panes is one of Gillman Bagley’s main content writers. Although she loved learning about every living thing on Earth, she decided to pursue her passion in writing in 2017 after getting her degree in Biology. Since then, she has written about various topics, including business-related ones, specifically in the financing and marketing niche.
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