Changes to DBE requirements leave credit managers in unfamiliar terrain 

The Disadvantaged Business Enterprise (DBE) Program, a federal program that offers marginalized businesses a fair opportunity to compete and thrive in competitive business environments, is being overhauled by the federal government, leaving credit managers working with DBEs in unfamiliar territory.

The U.S. Department of Transportation (DOT) issued an interim final rule on Oct. 3, 2025, restructuring their DBE and Airport Concessions DBE (ACDBE). The ruling eliminates race- and sex-based presumptions of social and economic disadvantage.

Why it matters: With the new ruling, currently certified DBEs will be required to undergo recertification under new standards of eligibility if they want to hold on to DBE status. Previously certified and prospective DBEs now must submit individualized evidence of disadvantage to retain or earn, respectively, status. A narrative with supporting documentation that demonstrates both social and economic disadvantage, without regard to race or sex, is now required.

In the wake of this decision, many public agencies have paused DBE participation goals in their contracts. The pause is not limited to federal contracts, with state DOTs, airports, transit authorities and local government bodies affected. With the new standards, it is unclear which businesses will be able to retain their status, making it difficult for public agencies to maintain DBE participation goals. There is no concrete timeline for how long the recertification process will take, creating uncertainty for previously certified businesses and those who work with them.

Contracts executed before the interim ruling in October do not require modification, but DBE participation may not be counted towards the contract goal or the DOT funding recipients’ overall DBE goal until the participating businesses have been reevaluated and recertified.

Credit managers who regularly work with DBEs are well aware of the standards these businesses are held to and their own responsibilities when vetting the business. “Credit managers have to do their due diligence when doing business with DBEs because of the requirements and the possibility that a DBE is fraudulent,” said George Demakis, corporate credit and pricing manager for Stone Group of Companies (Spokane, WA). “Credit managers need to have a process for verifying these customers because if they do business with a fraudulent company, there is a possibility that they can get pulled into the fraud and might be fined or sanctioned because of it.”

As the standards become stricter, credit managers must remain firm on their investigation processes when evaluating these businesses. With DBEs recertifying and many potentially no longer qualifying, it is important that credit managers communicate with their customers on their status and stay up to date on any changes.

If a customer is unable to attain the certification under the new standards, credit managers will need to determine exactly how it will impact their relationship with the customer. “Losing certification could impact the volume of projections we have for that customer who might not be working on the same projects without the certification,” said Isaac Kotila, regional credit manager for Insulation Distributors (Chanhassen, MN). “Whether or not they will remain on certain projects or be replaced by a certified DBE remains to be seen. These businesses also traditionally pay in a longer timeframe compared to other customers, because they have to get certain approvals. If a customer was no longer in the program, we may enforce stricter standards for payment times.”

“Even with tighter standards, you still need to take the time and verify that the business has been approved and licensed by the state,” Demakis said. “My suspicion is that with stricter standards there may be less fraud. Tighter standards may also lead to a lot of public jobs reducing the DBE requirements because there will likely be fewer certified businesses available to fill those contracts.”

Traditionally, in the vetting process, credit managers have had to be vigilant about the risk of fraud, most often appearing as shell operations or pass-throughs fraudulently posing as a DBE to reap the benefits of the program.

“It helps to see that they do business with other companies and general contractors,” Demakis said. “See if you can find out if they have their own equipment or an office or yard where they store and sell materials.”

It is still unclear how stricter standards will impact construction credit, but there is hope that requiring businesses to recertify could push fraudulent DBEs out of the program. “Safeguarding the certification process could help legitimate disadvantaged businesses get certified,” said Kotila. “When there’s abuse from fraudulent companies taking advantage, it prevents smaller businesses that would actually benefit from the program from being awarded those contracts.”

The bottom line: With the restructuring of the DBE program, credit professionals will need to do their due diligence to ensure not only that they know their true legal customer, but the updated standards they are held to.