SBA Removes Racial Presumption From 8(a) Program Eligibility for Individually Owned Firms

What the Rule Does

The U.S. Small Business Administration has issued a final rule amending 13 CFR 124 to remove the rebuttable presumption that individuals belonging to certain designated groups are socially disadvantaged for purposes of the Section 8(a) Business Development Program. The rule applies exclusively to small businesses owned and controlled by individuals; it does not amend or affect the eligibility of entity-owned small businesses — those owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations. The rule is effective September 10, 2026, and applies to all pending applications of individually-owned applicants as of that date.

Background and Constitutional Basis

Congress enacted the Small Business Act in 1953 to aid, counsel, assist, and protect small businesses, to ensure a fair proportion of government contracts go to small businesses, and to preserve the competitive free enterprise system. Among its provisions, the Act established the 8(a) BD program, which creates contracting preferences for small businesses owned and controlled by one or more socially and economically disadvantaged individuals. In implementing the program, SBA created a rebuttable presumption — codified at 13 CFR 124.103(b)(1) — that Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asians are socially disadvantaged individuals.

A small business not entitled to the rebuttable presumption challenged the presumption in the United States District Court for the Eastern District of Tennessee, contending it violated the right to equal protection because it does not further a compelling governmental interest and is not narrowly tailored to achieve that interest. The Court issued an Order finding that the regulatory rebuttable presumption violated the right to equal protection under the United States Constitution and enjoined SBA from continuing to use it in administering the program. Ultima Servs. Corp. v. United States Dep't of Agric., 683 F. Supp. 3d 745, 774 (E.D. Tenn. 2023). On November 25, 2025, the Department of Justice advised the Speaker of the House, pursuant to 28 U.S.C. 530D, that the rebuttable presumption violates the Constitution and that it would no longer defend it in court. SBA states that it fully agrees the rebuttable presumption is unconstitutional.

The New Standard for Establishing Social Disadvantage

In place of the presumption, the rule sets forth a revised, race-neutral standard by which any individual American citizen can establish social disadvantage. According to the rule, an individual may do so by showing that within his or her lifetime, the federal government or a state or local government or a university or corporation — through any action, policy, rule, regulation, or other practice of any of its agencies, subsidiaries, or authorized agents — discriminated against or was biased against a clearly definable racial, ethnic, or cultural group of which the citizen is a member, or favored a racial, ethnic, or cultural group of which the citizen is not a member, and that the discrimination, bias, or harm materially harmed the citizen.

Comment Period and Response

SBA published the proposed rule on June 11, 2026, in the Federal Register at 91 FR 35433, with a 30-day comment period. SBA timely received 114 comments during that period. A plurality of comments expressed opposition to the proposed rule. The agency states, however, that many of these comments addressed issues outside the scope of the rulemaking, sought to extend what the agency characterizes as unconstitutional race-based presumptions, or could be reasonably interpreted as objecting to the inclusion of certain races — namely White Americans — into the 8(a) program. An additional 20 comments advocated for a return to the racially presumptive framework. SBA determined that a substantial portion of the opposing comments reflected issues not directly relevant to the subject of the rulemaking or were in conflict with the Ultima ruling and inconsistent with a race-neutral 8(a) BD program.

Several commenters questioned why entity-owned firms face different requirements. SBA explains that, statutorily, social disadvantage is not an element of eligibility for any firm owned by a tribe, Alaska Native Corporation, Native Hawaiian Organization, or Community Development Corporation — meaning no entity-owned firm must establish social disadvantage, and rule changes detailing how social disadvantage can be demonstrated do not apply to them. Conversely, several commenters supported SBA for limiting the proposed changes to only individually owned small businesses, citing the political classifications of tribes, ANCs, and NHOs.

What to Watch

The final rule takes effect on September 10, 2026, at which point it will apply to all pending applications from individually-owned 8(a) applicants. Individually owned firms currently in the application pipeline or seeking to demonstrate social disadvantage will be subject to the new race-neutral standard as of that date.

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