What Is HUBZone, And How Does It Work For Small Businesses?

What Is HUBZone, And How Does It Work For Small Businesses

When it comes to getting contracts from governments, small companies often fall into a disadvantageous position in front of larger competitors. This is because large businesses have higher sales resources and are hence more cost-efficient. Hence, to address these issues and to provide a level-playing field for small businesses to acquire government contracts, the SBA created the HUBZone program.

In this article, you will learn basically about the program developed by the United States Small Business Administration. You will also learn about the various features of this program in addition to how it works. Then, we will discuss the eligibility criteria of HUBZone for small businesses. Finally, we will share with you how to attain a HUBZone certification. Hence, to learn more, read on through to the end of the article.


What Is HUBZone?

The Office of Small Business Programs defines –

HUBZone is a Small Business Administration (SBA) program for small businesses that operate and employ people in Historically Under-utilized Business Zones. The HUBZone Program mission is to promote job growth, capital investment and economic development to historically underutilized business zones, referred to as HUBZones, by providing contracting assistance to small businesses located in these economically distressed communities.

Basically, the HUBZone program helps small businesses to grow in business zones that are historically underutilized. The goal of the government is to award at least 3% of federal contracts to HUBZone businesses each year, that is, the companies having HUBZone certification.

However, apart from that, businesses having this certification can also compete for contract awards under the socio-economic programs for which a business qualifies.

The federal government created the HUBZone program to support small businesses in those parts of the country that do not have a high business culture or where startups are not common. The government funnels a portion of its purchases to small businesses coming from these areas. The aim of the program is to offer incentives for these entrepreneurs and also increase employment in those areas where people rarely look for jobs.

HUBZone Features: How Does It Work?

HUBZone Features_ How Does It Work

According to the official SBA website,

The government limits competition for certain contracts to businesses in historically underutilized business zones. It also gives preferential consideration to those businesses in full and open competition. Joining the HUBZone program makes your business eligible to compete for the program’s set-aside contracts. HUBZone-certified businesses also get a 10% price evaluation preference in full and open contract competitions.

The goal of the program (as the federal government states) is to award 3% of its contracts and subcontracts to small businesses having HUBZone certification. However, the federal government has still fallen short of its goal every year. As per an audit from the US SBA in 2018, HUBZone-certified companies received only 2.05% of all prime contracts, which was up from 1.7% the year before.

The businesses under this program benefit from being more competitive and gaining the ability for sole-source contracting. The internet behind the creation of the program is to diversify the purchases of the federal government and help small businesses that come from smaller parts of the country.

However, there are many critics who talk about the program’s failure in various aspects. As per a 2019 review by the Washington Post, for over two decades, 70% of all HUBZone contracts in Washington, DC, went to only 11 companies. Furthermore, the money went to those businesses that are located in wealthier neighborhoods.

What Are The Eligibility Criteria?

What Are The Eligibility Criteria Of HUBZone

The US SBA sets the eligibility criteria for HUBZone companies and decides whether a company is eligible or not to get contracts through the HUBZone program. The SBA also keeps a record of those businesses so that it gets easier for federal agencies to find useful suppliers from among these companies.

The following are the factors that make a business eligible for HUBZone certification:

  1. It must meet the definition of a “Small Business” as per SBA guidelines.
  2. The company must have at least 51% stake owned by US Citizens, an agricultural cooperative, a community development corporation, or a Native American tribe.
  3. The main office of the business is present in a “historically underutilized business zone.” There is also a map on the SBA website that shows which areas are identified as such.
  4. At least 35% of its employees must live in a HUBZone area. If a business receives certification but falls under this threshold later, it would need to meet this requirement before its annual recertification.

How To Attain HUBZone Certification?

What Is HUBZone, And How Does It Work For Small Businesses

Investopedia writes –

In concrete terms, government agencies are incentivized to consider bids from HUBZone businesses, even in cases where the price they offer is slightly higher than that of other firms. The government offers a 10% “price evaluation preference” to certified entities for both full contracting and subcontracting competitions.

If you think your business is eligible for HUBZone certification, you will need to create an account on the SBA website. Once you log in to your account, go to the “HUBZone” section under “Access.”

You must also have an account on Dun & Bradstreet, which provides you with a unique 9-digit number for each of your physical locations where your business is located. You can get this number for free.

Furthermore, you must also have a System for Award Management (SAM) account provided by the government. After receiving certification, update your profile on this account.

To maintain your HUBZone status, you will need to recertify with the program once every year.

Final Thoughts

Hope this article was helpful for you in getting a better idea of how HUBZone works. With the help of the HUBZone program, small businesses, especially the ones in underutilized areas, get a level-playing field to procure government contracts. Furthermore, the federal government also has a goal of awarding 3% of government contracts to HUBZone-certified businesses.

To qualify for the HUBZone program, a business needs to meet the definition of a “small business.” Furthermore, the headquarters of the business needs to be in an underutilized business zone. Do you have any more information regarding how to be eligible for this program? Share your ideas with us in the comments section below.

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