HUBZone Program Changes Effective December 26, 2019

Effective December 26, 2019 there will be changes to the HUBZone (Historically Underutilized Business Zone) Program that should benefit both small businesses and the Government. Small businesses should benefit because the restrictions will be slightly less rigorous both in order to get certified and to maintain certification. With the less stringent regulations, it will most likely result in more companies becoming HUBZone certified. With more certified businesses, presumably, this will lead to the Government being able to meet or at least be closer to meeting their HUBZone small business goals.

There are currently approximately 6,000 HUBZone certified businesses. To qualify and get certified as a HUBZone, the business must:
– be a small business;
– be at least 51% owned and controlled by U.S. citizens, a Community Development Corporation, an agricultural cooperative, a Native Hawaiian organization, or an Indian tribe;
– have its principal office located in a HUBZone; and
– have at least 35% of its employees live in a HUBZone.

The Government has not met their HUBZone small business goals since the inception. Below are the changes or clarifications and why they are useful.

Change: The maps designating HUBZone areas will be frozen for five years with the current one remaining constant until December 2021. Areas may be added because of disasters or Base Realignment and Closure (BRAC), however they will not be subtracted.

Why this is useful: In the past, the HUBZone maps could change frequently. It is possible that an office or someone’s residence was located in a HUBZone. In a relatively short period of time, the HUBZone area changed and was no longer designated as one. This rule change will make it easier to remain in compliance.

Change: Businesses will be re-certified annually instead of each time they submit a proposal and win an award.

Why this is useful: Currently, a company has to re-certify every time they win an award. If a company won a new award that was not located near a HUBZone that required employees to work on-site; it is easy to understand how a company’s percentage of employees living in a HUBZone could be significantly reduced quickly. This rule gives the company time until the next re-certification review to add employees so that they meet the 35% residency requirement.

Clarification: In the past, the HUBZone program did not define an “attempt to maintain compliance” with respect to the 35% employee residency rate in a HUBZone. This led to confusion among businesses.

Why this is useful: SBA quantified that an “attempt to maintain compliance” is maintaining a minimum of 20% employee residency rate in a HUBZone. If the company has a minimum of 20% of their employees with a HUBZone residence, they may recertify as a HUBZone. However, they may not win new awards until they meet the 35% residency requirement. Firms shall also be able to show that they made substantive and documented efforts such as written offers of employment, published advertisements, and attendance at job fairs in/near HUBZone areas.

Change: Currently as soon as an employee moves out of a HUBZone, he/she no longer counts towards the 35% residency requirement. The regulation will change to– if an employee resides in a HUBZone 180 days/6 months prior to certification/re-certification and 180 days/6 months after certification/re-certification and moves out of the HUBZone after 7 months of the certification/re-certification, he/she can continue to count towards the 35% requirement until the next re-certification.

Why this is useful: This gives the company additional time to plan in terms of hiring employees in a HUBZone to maintain the 35% minimum residency requirement.

Qualifying and maintaining HUBZone status can be challenging. However, the SBA is attempting to make it easier without losing sight of the goal–to have companies invest in Underutilized Business areas to increase employment opportunities and economic development.

For more information go to: HUBZone Program

*Thanks to Mason Enterprise Center—Loudoun and Bruce Purdy, Deputy Director, Small Business Administration for the excellent presentation on Monday, December 2, 2019. #Loudoun Possible
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