Building Your Business Operations & Success What Is a Socially and Economically Disadvantaged Business? Definition & Examples of a Socially and Economically Disadvantaged Businesses By Lahle Wolfe Lahle Wolfe Facebook Twitter Lahle Wolfe wrote about women in business for The Balance Small Business. She has more than 25 years of experience in small business development and ran her own digital marketing firm. learn about our editorial policies Updated on September 17, 2020 Photo: Ariel Skelley / Getty Images A socially and economically disadvantaged business is a business owned by an individual who has experienced disadvantages due to race, ethnicity, culture, and economic disadvantages. Learn more about socially and economically disadvantaged businesses and resources that are available to help. What Is a Socially and Economically Disadvantaged Business? Not every aspiring business has access to the same resources. If you're forming a business and looking for resources or funding, or you're establishing a particular business identity (i.e., woman-owned business or minority-owned business), you may qualify for assistance under the Small Business Act. This means you may be prioritized when it comes to securing government contracts and be able to work with organizations like the National Minority Supplier Development Council. How Socially and Economically Disadvantaged Businesses Work The Small Business Act was passed in 1953 to assist small businesses and ensure they received a "fair proportion" of government contracts and sales of surplus property. It's been updated several times since, but its core mission remains the same. The federal government defines “socially and economically disadvantaged” individuals under the Small Business Act (15 USC 637) as follows: Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. In determining the degree of diminished credit and capital opportunities the Administration shall consider, but not be limited to, the assets and net worth of such socially disadvantaged individual. Small Business Act concerns and qualifications extend only to socially and economically disadvantaged citizens of the United States, or those who have been lawfully granted permanent U.S. residency. Individuals specifically mentioned include: Black AmericansHispanic Americans regardless of race, culture, or originAsian-Pacific Americans and Subcontinent Asian AmericansNative Americans including Native Hawaiians, Alaskan Native, Aleuts, and American IndiansWomen The Act also states that other minorities and other individuals found to be disadvantaged may also qualify for assistance. Although the Small Business Administration adheres to the Act's definitions, they still require all applicants to prove that they meet the definition. In other words, being socially disadvantaged doesn't automatically prove an economic disadvantage, so be prepared to offer financial data as well as general information about your business to establish that you're an economically disadvantaged business. Women-Owned Businesses A woman is presumed to be economically disadvantaged if she has a personal net worth of less than $750,000, her adjusted gross yearly income averaged over the three years preceding the certification does not exceed $350,000, and the fair market value of all her assets (including her primary residence and the value of the business concern) does not exceed $6 million. To be considered an Economically Disadvantaged Women-Owned Small Business (EDWOSB), a woman-owned business must be at least 51% owned and/or operated one or more women who are U.S. citizens (born or naturalized). Other organizations may have slightly different definitions of "woman-owned." Note Women-owned businesses can be certified through the Women's Business Enterprise National Council (WBENC). Advantages of Being a Socially and Economically Disadvantaged Business If you have great connections and resources, you may think identifying as a woman-owned business (WOB) or minority-owned business (MOB) is not essential. However, before you write off seeking resources, associations, programs, or certifications, you should know that merely being an officially recognized WOB or MOB has its advantages. The designation may help you qualify for government contracts (federal, state, and even local municipalities) that you would otherwise have a more challenging time qualifying for because you may not have the connections of someone with more advantages. Government contracts can provide income and stability. Key Takeaways A socially and economically disadvantaged business is a business owned by an individual who has experienced disadvantages due to their race, ethnicity, culture, or a lack of capital.If you're forming a business and looking for resources, funding, or even to establish a particular business identity (i.e., woman-owned business or minority-owned business), you may qualify for assistance under the Small Business Act. To qualify, you need to meet the definition of social and economic disadvantage, and you must provide proof of being economically disadvantaged. Being designated as a socially and economically disadvantaged business can help you qualify for government contracts. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Small Business Administration. "Small Business Act." Accessed Aug. 23, 2020. House of Representatives. "15 USC 637: Additional Powers." Accessed Aug. 23, 2020. Small Business Administration. "Economically Disadvantaged Women-Owned Small Business." Accessed Aug. 23, 2020.