T his report discusses what constitutes a "disadvantaged" small business for purposes of federal and federally funded contracting programs and how firms are certified or otherwise designated as such. Three primary categories of disadvantaged small businesses are currently eligible for various contracting programs under federal law: (1) small businesses participating in the Small Business Administration's (SBA's) Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) Program) (8(a) participants); (2) "small disadvantaged businesses" (SDBs); and (3) "disadvantaged business enterprises" (DBEs). These firms are characterized as "disadvantaged" because they are at least 51% unconditionally owned and controlled by socially and economically disadvantaged individuals or groups. Members of certain racial and ethnic groups are presumed to be disadvantaged, and other individuals can prove personal disadvantage by a preponderance of the evidence. Veterans and persons with disabilities are not presumed to be disadvantaged for purposes of these programs. However, there are separate contracting programs for them. Disadvantaged groups include Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations, and Community Development Corporations. In FY2014, the federal government awarded $34.7 billion in contracts or subcontracts to SDBs, including $16.3 billion in contracts to 8(a) participants. Similar data about contracting with DBEs is not publicly available. Contracting opportunities for disadvantaged small businesses are perennially of interest to the Members and committees of Congress because of small businesses' widely asserted role in job creation. Also, there has been concern that the recession of 2007-2009 disproportionately affected disadvantaged small businesses, and that such businesses have been slow to recover. A separate report, CRS Report R43573, Federal Contracting and Subcontracting with Small Businesses: Legislation in the 113th Congress , by [author name scrubbed], discusses recently enacted and introduced legislation pertaining to the 8(a) and SDB programs. Small businesses that are at least 51% unconditionally owned and controlled by "socially and economically disadvantaged individuals" or groups are eligible for the Minority Small Business and Capital Ownership Development Program. Implemented by the SBA under the authority of Sections 7(j) and 8(a) of the Small Business Act, as amended, this program is commonly known as the 8(a) Program, and participants in it are often called 8(a) participants or 8(a) firms. Owners of 8(a) firms must be "socially disadvantaged," or have been subjected to "racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities." Members of the following racial and ethnic groups are presumed to be socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands, Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and members of other groups designated from time to time by SBA.... Persons who are not members of these groups must establish individual social disadvantage by a preponderance of the evidence, including (1) at least one objective distinguishing feature contributing to social disadvantage, such as race, ethnic origin, gender, or physical handicap; (2) personal experiences of substantial and chronic disadvantage in American society; and (3) negative impact on entry into or advancement in the business world because of this disadvantage. Owners of 8(a) firms must also be "economically disadvantaged" in that their "ability to compete in the free enterprise system has been impaired due to diminished credit and capital opportunities as compared to others in the same or similar line of business who are not socially disadvantaged." Economic disadvantage is not presumed for any individual owners. Rather, all individuals upon whom an 8(a) firm's eligibility is based must describe their economic disadvantage in a narrative statement and submit personal financial information to the SBA. This information generally includes, among other things, income for the past three years, personal net worth, and the fair market value of all assets. An individual's net worth, excluding ownership interest in the 8(a) firm and equity in his or her primary personal residence, must be less than $250,000 at the time of application to the 8(a) Program, and less than $750,000 thereafter. The value of retirement accounts was historically not excluded when the net worth of prospective 8(a) participants was calculated, but the SBA amended its regulations in February 2011, allowing the value of retirement accounts to be excluded in certain circumstances. Formerly, the SBA also compared the financial condition of firms applying to the 8(a) Program to the financial profiles of small businesses in the same primary industry classification, or similar line of business, that were not owned by socially and economically disadvantaged individuals when determining economic disadvantage. However, in the February 2011 amendments, the SBA removed this provision from its regulations on the grounds that the provision caused "confusion," although the SBA noted that it would continue to review the financial condition of 8(a) applicants in determining whether they have "potential for success." Firms must apply to participate in the 8(a) Program and generally may not receive contracting or other federal assistance based upon 8(a) status until the SBA approves their application. The application form requires submission of various materials including, but not limited to, financial statements, federal personal and business tax returns, and personal history statements. Once accepted into the 8(a) Program, firms must inform the SBA in writing of any changes in circumstances that adversely affect their eligibility. Each firm must also complete an annual review, which requires submission of (1) certifications that the firm meets the eligibility requirements and no changes in circumstances adversely affect its eligibility; (2) personal financial information for each disadvantaged owner; and (3) a financial statement for the firm, among other things. Depending upon the firm's annual gross receipts, its financial statement may need to be audited by an independent public accountant, as Table 1 illustrates. Firms may participate in the 8(a) Program one time, for a period of no more than nine years. Once a firm has exited the program after participating in it for any period of time, it is generally ineligible for further participation. Additionally, socially and economically disadvantaged individuals may confer eligibility for the 8(a) Program upon only one firm over their lives. In contrast, disadvantaged groups (i.e., Indian tribes, Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), and Community Development Corporations (CDCs)) may confer eligibility upon multiple 8(a) firms, which may participate in the 8(a) Program concurrently (subject to certain limitations on the primary industries in which they operate), or at different times. Federal agencies "set aside" certain contracts for 8(a) firms by conducting procurements in which only 8(a) firms may compete. They can also award contracts to 8(a) firms on a sole-source basis, sometimes in circumstances in which they could not otherwise make sole-source awards. Federal agencies reportedly spent $16.3 billion on competitive or sole-source contracts with 8(a) participants in FY2014. However, 8(a) participants are not assured of receiving federal contracts, and only 44% of 8(a) firms not owned by Alaska Native Corporations reportedly received contracts in one recent fiscal year. 8(a) firms are also eligible for (1) direct and guaranteed loans from the SBA; (2) transfer of technology and surplus property owned by the United States; and (3) management and technical assistance, including training in financing, management, accounting, bookkeeping, marketing, the operation of small businesses, and the identification and development of new business opportunities. Additionally, the SBA sponsors a mentor-protégé program for eligible 8(a) participants. Mentors are established firms that provide their 8(a) protégés with technical or management assistance; financial assistance in the form of equity investments or loans; subcontracts; and assistance in performing prime contracts through joint venture arrangements. In particular, mentors and protégés may form joint ventures that could qualify as "small" for purposes of government procurements, including sole-source awards under Section 8(a). "Small disadvantaged businesses" (SDBs) include 8(a) participants and other small businesses that are at least 51% unconditionally owned and controlled by socially or economically disadvantaged individuals or groups. SDBs that are not 8(a) firms need not demonstrate potential for success, and individuals owning and controlling non-8(a) SDBs may have net worth of up to $750,000 (excluding ownership interests in the SDB firm and equity in their primary personal residence). Otherwise, however, SDBs must generally satisfy the same eligibility requirements as 8(a) firms, although they do not apply to the SBA to be designated SDBs in the same way that 8(a) firms do.