Judge’s Ruling: Business Owners Of Color Must Now Submit Proof Of ‘Social Disadvantage’ For SBA Loans

In the wake of a July decision by a Tennessee federal judge, small business owners will now be required to write a letter proving that their race impedes their business. As Business Insider reports, due to the judge’s ruling, the Small Business Administration was required to change how small business owners receive funds through its 8a program. In new guidance posted by the administration in late August, participants must complete a social disadvantage narrative if they wish to keep being funded by the program.

The guidance reads, “SBA must determine that the discrimination or bias experienced by an individual is chronic, substantial, and has occurred within American society (not another country).”

The guidance continues, “Additionally, the discrimination must have negatively impacted the individual’s entry or advancement in the business world.”

Judge Clifton Corker ruled in favor of Ultima Services Corp.’s case against the United States Department of Agriculture, using the same logic that the Supreme Court did when it struck down affirmative action earlier in 2023. Corker found that the SBA’s program violated the equal protection clause of the 5th Amendment, as Case Text notes in the court documents

“The Court DECLARES that Defendants’ use of the rebuttable presumption violates Ultima’s Fifth Amendment right to equal protection of the law,” said the ruling.

Corker’s opinion spells out that he does not believe that minority businesses are necessarily socially disadvantaged because the SBA identifies them as minority-owned businesses.

It reads in part, “the determination of which groups of Americans are presumptively disadvantaged compared with others necessarily leads to such a determination being underinclusive because certain groups that could qualify will be left out of the presumption.”

Edward Blum, the conservative activist who filed the lawsuit that sparked the Supreme Court’s decision to strike down affirmative action in college admissions, filed a lawsuit in August against the Fearless Fund, which gives grants to Black women entrepreneurs. Blum also moved to sue two law firms with fellowships to foster diversity. Blum’s motive appears to pressure conservatives to pursue litigation to do away with diversity and inclusion in the private business sector.

It is also currently unclear whether or not the Biden-Harris administration will appeal the Tennessee ruling, but SBA Administrator Isabella Casillas Guzman released a statement affirming the administration’s commitment to the 8a program. The 8(a) program was created to help firms owned and controlled by socially and economically disadvantaged individuals.

“The SBA is proud of our work to promote equity and level the playing field in federal procurement to attract a diverse supplier base and ensure competition, innovation, and performance,” she wrote. “As we work with the Department of Justice to continue reviewing the District Court’s ruling and evaluating the next steps, the SBA and Biden-Harris Administration remain committed to supporting this crucial program and the small business owners who have helped drive America’s strong economic growth.”