A Small Disadvantaged Business (SDB) is a company where the majority owner is both socially and economically disadvantaged. Many businesses “owned and controlled” by minority entrepreneurs may qualify as SDBs, but not always. To qualify as an SDB, the individual business owner’s net worth, income, and fair market value of all assets must also be below certain thresholds. Also, SDB eligibility is not exclusively limited to minority business owners. According to the Code of Federal Regulations,
any business where the majority owner “has 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” may qualify as an SDB.

The links below provide in-depth information on who may qualify and claim SDB status. For example, 13 CFR 124.103 provides some specific examples of both minority and non-minority individuals who may claim SDB status. Also, 13 CFR 124.1001 (linked below) states that a “firm may represent that it qualifies as an SDB for any Federal subcontracting program if it believes in good faith that it is owned and controlled by one or more socially and economically disadvantaged individuals.”

13 CFR 124.1001 What Is a Small Disadvantaged Business?
13 CFR 124.103 Who Is Socially Disadvantaged?
13 CFR 124.104 Who Is Economically Disadvantage?

So, why should you care whether your business is an SDB? First, let’s do the math. The U.S. Federal government spends over $600 billion each fiscal year, making it the world’s largest buyer. For the fiscal year 2023, the federal government has an SDB contracting spending goal of 12%. By 2025, the SDB spending goal is set to increase to 15%. Fifteen percent of $600 billion is $90 billion! Furthermore, you may be eligible to apply for the SBA’s 8(a) certification and become eligible for 8(a) set-aside opportunities and Federal sole-source contracts as part of the SBA’s 8(a) Business Development Program.