Small Business Administration Stops Sorting Applicants by Race After CIR Clients Sue

Revier Technologies and Young America’s Foundation v. Loeffler 

Matthew Schultheis develops cutting-edge artificial intelligence tools for the construction industry at his startup, Revier Technologies. He applied to four funds that invest capital through a federal small business program. All four turned him down. But because he is white, he could not claim the SBA’s presumption that certain races are “socially disadvantaged.”  

Students in Young America’s Foundation college chapters hit the same wall. Because of their race, they could not apply on equal terms for a paid cybersecurity fellowship at the Department of Homeland Security So Revier and YAF sued to challenge the SBA’s racial presumption behind both programs.  

Why it’s illegal:

The Constitution’s guarantee of equal protection bars the federal government from sorting people by race without strong evidence of specific past government discrimination. The SBA had no such evidence, and its racial preference never expired.  

What we asked the court to do:

The lawsuit asked the court to declare the SBA’s racial presumption unconstitutional, block the government from enforcing it, and throw out the entire rule that created it.   

Why this case matters:

• If the government can use racial categories to decide who gets opportunities—without strong evidence that doing so is necessary to remedy recent government discrimination, then equal protection means nothing. The SBA now has admitted in its own rulemaking process that its racial presumption is unconstitutional. Any agency that tries to revive it will be defending a rule that the government itself has disowned. 

• The SBA’s racial presumption was a template, incorporated into at least 20 other federal programs, reaching entrepreneurs and students alike. The Treasury Program Matthew applied to set aside $1.5 billion for “disadvantaged” owners. 

• Courts have ruled against similar presumptions in Commerce and Transportation Department programs, and the Justice Department has revised the regulations for the Transportation program to exclude the racial presumption. 

• Revier is CIR’s third equal protection case against the 8(a) presumption, after DynaLantic and Ultima Services, and the case that resulted in removing it from the books. 

---

The Full Story

Two Opportunities Closed by Race

In summer 2024, Matthew sought investors for his startup: he had a promising business, economic need, and stellar qualifications. The funds he approached were investing money from the Treasury Department’s State Small Business Credit Initiative that was set aside for businesses owned by people deemed “socially and economically disadvantaged.”  

One of them, the Tulane Ventures Seed Fund, asked applicants whether their company was minority-owned. He checked “no.” On July 3, the fund turned Revier down because it was not owned by a disadvantaged person. Three other funds also said no. None invested in Revier. 

Young America’s Foundation has members at more than 1,000 colleges. Under its Intelligence and Cybersecurity Diversity Fellowship, the Department of Homeland Security offers tuition help, a paid internship, and a job offer to college graduates with at least a 3.2 GPA. But federal law opens it only to students who count as “socially disadvantaged” under the SBA’s rule.

A Racial Preference Built Into Federal Programs

The SBA’s Section 8(a) program was created to help small businesses owned by people who are “socially and economically disadvantaged.” Instead of requiring individualized proof of disadvantage, the SBA automatically presumed that members of listed racial and ethnic groups were “socially disadvantaged.” Everyone else had to prove it through a costly four-part review. Most people don’t even try. 

People with Spanish ancestry qualified , but not people with other European backgrounds. Pakistanis were in; Afghans were out. Chinese Americans were in; people from Kyrgyzstan were out. The SBA set no end date for this preference or any process to remove groups from the list. Indeed, the SBA has not seriously reviewed these categories since the 1980s—almost 40 years ago.  

NASA, for one, set a goal of steering 8% of its contracting dollars to firms that qualified under Section 8(a). The Environmental Protection Agency did the same with 10% of Clean Air Act research funding. 

What the Constitution Requires 

When the government sorts people by race, courts apply “strict scrutiny,” the highest level of review. The government must prove a compelling reason, backed by evidence of specific past discrimination by the agency itself. The government must prove its program is narrowly tailored, meaning precisely suited to achieve that compelling reason. In Students for Fair Admissions v. Harvard, the Supreme Court added that race-based programs cannot rely on stereotypes, treat race as a negative, or run forever. 

Going After the Rule Itself

In 2012, a federal judge ruled in CIR’s DynaLantic case, that the government could not apply 8(a) to military simulation and training without specific evidence of discrimination. More than a decade later in Ultima Services Corp. v. U.S. Department of Agriculture, a federal court ruled the presumption unconstitutional and barred the SBA from using it nationwide. But the presumption stayed in the regulation, and programs that borrowed it kept using it. 

So CIR teamed up with the Wisconsin Institute for Law & Liberty to bring this challenge under the Administrative Procedure Act, a federal law that lets courts throw out unlawful agency rules. After receiving more than three months of extensions, the Justice Department caved, saying it would no longer defend the regulation. The SBA proposed a rule removing the presumption, and noting it was written to comply with the court order CIR won in Ultima. 

The new rule: 

• Removes the race-based presumption. No one receives preferential treatment under Section 8(a) by checking a racial box 
• Replaces the personal essay test with one requiring evidence of discriminatory treatment. 

The SBA noted it “fully agrees that the rebuttable presumption is unconstitutional,” implicitly acknowledging that from 1986 until 2023, the 8(a) program unconstitutionally sorted and favored people by race and ethnicity.