SBA Proposes Rollback of Social Disadvantage Presumption in 8(a) Program

The U.S. Small Business Administration (SBA) on June 11, 2026, will publish in the Federal Register a Notice of Proposed Rulemaking (NPRM) to roll back the agency's presumption of social disadvantage for individually owned companies under the SBA's 8(a) Business Development program. The proposed rule, titled "Reforms to 13 CFR § 124.103 to Remove SBA's 8(a) program's Rebuttable Presumption of Social Disadvantage for Individually Owned Firms Only," is the first rulemaking action under the current administration to substantively alter the 8(a) program and follows a wave of SBA policy changes earlier this year and prior litigation actions on the subject. Comments on the proposed rule are set to be due 30 days from publication in the Federal Register.

Background

The 8(a) program provides training and technical assistance to help eligible small businesses develop and compete for contracting opportunities that are set aside for program participants. The 8(a) program contains two distinct categories of participants. The first category is small businesses that are owned by socially and economically disadvantaged individuals. Among the eligibility requirements, 13 C.F.R. § 124.103 requires individual participants to demonstrate that they are "socially disadvantaged." Historically, the regulation has allowed SBA to apply a presumption of social disadvantage for individuals belonging to certain enumerated racial groups, including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans and Subcontinent Asian Americans. This presumption can be rebutted under the regulations with "credible evidence to the contrary." Id. § 124.103(b)(3). SBA has allowed other individuals who are not a member of an enumerated group to establish social disadvantage by complying with a more rigorous and individualized test. 13 C.F.R. § 124.103(c).

The second category of participants in the 8(a) program is concerns that are owned by Community Development Corporations, Indian Tribes, Alaska Native Corporations and Native Hawaiian Organizations. Referred to as "Entity-owned" firms, participants in this component of the 8(a) program must be owned and controlled by such entities. Entity-owned concerns operate under different eligibility criteria, have different statutory bases for participation and serve large communities of people. As SBA has expressly stated in the proposed rule, Entity-owned firms are not affected by this rulemaking.

The social disadvantage presumption for individuals has been the subject of litigation challenging it on constitutional grounds. Notably, in 2023, the U.S. District Court for the Eastern District of Tennessee ruled that the presumption of individual social disadvantage in SBA's regulations was unconstitutional. Ultima Servs. Corp. v. U.S. Department of Agriculture, 683 F. Supp. 3d 745, 774 (E.D. Tenn. 2023). While the court's final ruling is still pending, SBA introduced a requirement in 2023 for individual applicants to submit a narrative explaining how their business has been impacted by discrimination and bias.

In January 2026, SBA issued formal guidance stating that it considered the 8(a) program's presumption of social disadvantage unconstitutional and discriminatory as applied to individual applicants and declaring that SBA would not presume social disadvantage solely based on race. SBA also stated that it would not consider social disadvantage narratives when reviewing applicants to the 8(a) program, noting that SBA has not applied the presumption or utilized the narratives since the beginning of the administration. The guidance also cited a November 25, 2025, letter from the U.S. Department of Justice (DOJ) to U.S. House of Representatives Speaker Mike Johnson (R-La.) advising that DOJ would not defend the constitutionality of the social disadvantage presumption, in light of the court's ruling in Ultima.

The latest proposed rule underwent 19 days of review by the Office of Information and Regulatory Affairs (OIRA) since it was first received on May 22, 2026, and OIRA did not hold any meetings with outside parties prior to its publication in the Federal Register.

SBA's Proposed Rule

As alluded to in SBA's prior guidance, the proposed rule will formally remove the presumption of social disadvantage for individuals in the 8(a) program. The Notice states that SBA is making four targeted changes.

First, SBA proposes revising the definition of "socially disadvantaged individuals" in 13 C.F.R. § 124.103 to match the statutory definition in 15 U.S.C. § 637(a)(5). See 15 U.S.C. § 631(f)(1)(B). Section 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 proposed definition is largely similar to the current language in 13 C.F.R. § 124.103 with minor wording differences.

Second, SBA proposes a new test under 13 C.F.R. § 124.103(b) for establishing social disadvantage, discussed below.

Third, SBA proposes revising 13 C.F.R. § 124.103(c) by removing the current non-presumptive test for social disadvantage for individuals who are not a member of an enumerated group, rendering the new test in 13 C.F.R. § 124.103(b) the sole test for social disadvantage.

Fourth, SBA proposes removing the process for group inclusion on the Rebuttable Presumption list under 13 C.F.R. § 124.103(d), as this process will be rendered moot once SBA removes the Rebuttable Presumption altogether.

The new test proposed is as follows:

The new test would allow any individual U.S. citizen to establish social disadvantage by showing that the government – including state and local governments, universities and corporations – discriminated against the individual's own racial, ethnic or cultural group and the individual suffered material harm as a result. As an example, SBA states that a U.S. citizen would be allowed to establish that their racial, ethnic or cultural group experienced a "barrier" to accessing a federal contract that other designated groups did not.

To establish that an individual was harmed by discrimination, SBA will allow the individual to self-certify 1) their membership of the relevant racial, ethnic or cultural group at the time of the government's action and 2) that the government's action materially harmed the citizen. SBA notes that an individual could self-certify that their lack of access to a particular government program – such as ineligibility for the prior rebuttable presumption standard – constitutes discrimination. Accordingly, the fact that the individual could have sought entry to that government program and would have been denied is sufficient to constitute material "harm."

In the Analysis published along with the proposed rule, the SBA notes that an individual can establish social disadvantage not only showing that he or she was discriminated against by a federal, state or local government or a university or corporation, but also if such an entity "favored in any way a racial, ethnic, or cultural group of which the citizen is not a member."

The SBA's Analysis goes on to state, "[e]xamples of such discrimination would include, but are not limited to: unlawful diversity, equity, and inclusion programs or policies; unlawful affirmative action programs or policies; race-based quotas, set-asides, or hiring targets; or, any government or private entity policies or programs that favored some groups over others on the basis of race."

This broad standard could result in an expansion of the number of small businesses eligible for admission into the 8(a) program. Although, notably, the proposed rule's reforms only apply to individually owned small businesses seeking admission to the 8(a) program. The Notice states that "[w]hile SBA does not currently intend to apply the new test to current Participants at their next annual review, SBA requests comment on any reliance interests that would be implicated by these proposed changes."

The Scope and Impact of the Proposed Rule Is Limited to Individually Owned Concerns and Does Not Impact Entity-Owned Concerns

As expressly noted in the proposed rulemaking, this action relates only to individually owned concerns; it does not impact Entity-owned concerns. This statement is important because in late February 2026, a new proposed SBA rule appeared on the OIRA review docket, titled "Fraud, Waste and Abuse Reforms." Information indicated that this proposed rule would be much broader in scope than the proposed rule published on June 11, 2026. In addition to the express statements in the proposed rule regarding individual social disadvantage, senior SBA officials stated publicly on June 9, 2026, that the broader "Fraud, Waste and Abuse" rule would not be moving forward anytime soon.

Public Comment and Implementation

The proposed rule will undergo a 30-day public comment period, during which stakeholders may provide formal feedback on its provisions that SBA is statutorily required to consider when drafting the final rule. Interested individuals and stakeholders should use the comment period to evaluate how the proposed rule will affect their ability to participate in the 8(a) program and compete for federal contracting opportunities. Comments on the proposed rule will be due on July 13, 2026.

Holland & Knight's Government Contracts Group will continue to monitor 8(a) program developments as SBA continues to respond to the Ultima decision and reform the 8(a) program. For questions about the proposed rule, its specific impact on your company and how to provide meaningful input during the notice-and-comment period, please contact the authors.