We recently received a call from a customer who needed a $500,000 bond and said their current agent was charging them just under 4% for their SBA bond. That’s almost $20,000! They knew that seemed high so I advised them to ask for a breakdown of the bill. The customer said the premium rate was 3% flat, the SBA fee was .729% flat, and there was a $300 fee on top of everything. This did in fact bring the total to just under 4%. Is this price typical of all SBA bonds? No, not necessarily. Let me explain by breaking down the fees that resulted in a rate this high.
- SBA bonds are really just bonds issued by private surety companies who get a ‘guaranty backing’ from the SBA. Each of these surety companies have different rates filed for different states. So the “3%” flat rate in the example could be different from state to state and from company to company.
- The SBA does have a .729% fee on all performance and payment bonds. But the SBA has what’s called a Plan A and Plan B, where the agent can do all the work under Plan A or submit to the surety company under Plan B, which in turn means the surety does most the work. This extra work often results in a higher fee. Under Plan B, this could be 3% flat, 2.5% flat, etc. depending on the surety company. For the same bond under Plan A, the surety companies have rates filed at lower rates, and depending on the state, it could be and is likely much lower. Read the end of this blog to see the savings on this recent example.
- The $300 fee. Not sure what this was for except that the agent must have charged a service fee. At Surety 1 we don’t have any fees for SBA bonds. And if a customer is already paying 3.79% for a bond, an added fee is just too much.
Luckily for the client we were able to help. After submitting directly to the SBA under plan A, we obtained approval from both the SBA and surety and benefited from the surety’s filed California rate for SBA plan A bonds. The rate was 2.35% for the first $100k, and 1.8% thereafter. We had no broker fee. The result: That same bond had a premium of $9,550 and the SBA fee remained the same at $3,645 totaling $13,195. This was a savings of $6,055!
So in summary, the SBA’s .729% fee on performance and payment bonds (one charge) is unavoidable for SBA backed bonds. However, a 3% flat rate is not the norm on jobs of this size. If you have any questions about your rate feel free to contact us at [email protected] or by phone at 877-654-2327. Let’s see if we can save you some money.