Date Published: January 25, 2016

SBA Surety Bond Guarantee Program (SBG) – the Actual Underwriting Process

This blog covers the underwriting process that occurs after one applies for the SBG Program offered by the United States Small Business Administration. There are many factors that effect whether or not one can get bonded in the SBG Program. These factors act as ways that the SBA can use to confidently select the best possible candidates for the SBG Program.

Factors affecting bond capacity and overall ability to qualify for the SBA bond guarantee program 

Working capital

  • Defined as the available funds that can be used to pay current expenses. This includes funding backlog and the cost of bidding as well as accounts payable. Working capital can be calculated by subtracting the current liabilities from the current assets. It provides a recent figure of capital that a business can allocate to pay for day to day operations. The SBA also considers any available/open credit lines as working capital. 


  • The main tools used to evaluate character include credit and credit history. The business must have an established history of paying its employees, vendors and lenders.  The business owner cannot have any current or open tax liens to qualify for the SBA bond guarantee program.


  • The available resources of the business, such as working capital and number of employees and previous experience.  Work history is a major factor in calculating capacity.
    • Some questions that may be asked throughout the application process:
      • What size job does the business usually complete successfully?
      • How many consistent full time staff presently operate in the business?
      • What are the largest jobs completed in the last 5 years?

What are Conditions making a Business / Contractor Ineligible?*:

Below are the most common elements that lead to a declination in the SBA bond guarantee program.

  • Character – Each person who owns 20% or more of the equity must complete SBA form 912 “Statement of Personal History” which evaluates character. Items that will result in a declination due to character include:
    • The person is under indictment for or has been convicted of a felony.
    • If the person is currently incarcerated, on parole, or on post-conviction probation or has a pending criminal case.
    • If the person has committed a breach of trust or has violated a law protecting the integrity of business transactions or business relationships.
    • If the person has obtained a bond guarantee by fraud or material misrepresentation.
    • A contractor fails to inform the Surety of unbounded contracts or of a contract bonded by another surety, as required by a bonding line commitment.
  • Capacity – The contractor must be expected to perform the project. The contractor must have the skills, and abilities necessary for the work. They should have previous experience in the type of work required by the contract.
  • Business Principle Location – The business and its territories and possessions must be in the U.S.
  • Legal Citizenship – You must be a legal resident of the United States to qualify for the SBA bond guarantee program. Verification can be in the form of Social Security Number, Individual Taxpayer Identification Number (ITIN). Also acceptable to prove legal residency are a resident Card (Green Card), work visa, or other documentation of legal status from the United States Citizenship and Immigration Services (USCIS).
  • Current Bankruptcy – Both the business and their owners, partners, or stockholders with a non-discharged bankruptcy proceeding are not eligible for an SBA bond guarantee.
  • Outstanding Tax Debts – Applicants with outstanding tax debts are excluded. The only exception is if the tax debt is subject to a payment agreement.  All debts due to the IRS and other government entities for outstanding tax obligations must be explained to the SBA. If subject to a payment plan for previous tax delinquency, a copy of the payment agreement and written proof that the payment agreement is current must be included.

*The surety company must have the option to either complete the contract or pay out the penal sum of the bond in the event of the contractor’s default. The SBA will not guarantee a bond that restricts the surety’s exercise of these options.

Elements Required to Bond a Specific Contract

You have made it through he evaluation and it has been determined that you do qualify for the SBA bond guarantee program. Now its time to request a bond and the following must be present in a contract before a bond approval will be given.

  • Clear requirement The bond must be expressly required. This means the bid solicitation or the original contract specifically requires a bond
  • Clear contract amount – The amount of the contract must be clear and the contract cannot include an automatic escalation clause.  The bond amount cannot exceed the legal limit  of the surety. 
  • Partial Subcontracting – The contractor must certify the percentage of work that will be subcontracted. The contractor cannot subcontract the full scope of work. The contractor must be fully responsible for the oversight and management of the contract. This includes the work performed by subcontractors.
  • Debarment – The contractor cannot be presently debarred, suspended, proposed for debarment by any branch of the federal government. No contractor may be declared ineligible, or voluntarily excluded from transactions federal agency or department. 
  • Bond amount – The amount of the performance bond cannot be greater than the amount listed in the contract.
  • Maintenance period – A maintenance period of two years is acceptable for the SBA bond guarantee program. If the maintenance period is longer than two years, the SBA may still approve. If the maintenance period protects more than just defective workmanship and materials the SBA may approve. In both of these instances, the SBA’s written approval is necessary.
  • Multi-year contracts – Can be acceptable as long as the total contract amount does not exceed the statutory limit for the program. This is currently 6.5 million. Each optional year following the initial contract year is treated as a separate obligation. As such a new submission to the SBA and a new approval will have to be obtained.  
  • Asbestos Abatement and Hazardous Waste Projects – This can be eligible for the SBA bond guarantee. The contractor has to meet additional requirements. The surety company provides the SBA with the necessary documentation. The must have the required training and certification for the project tasks. These maybe required by federal, state, or local regulations. Aslo the contractor must, comply with ordinances and laws regarding that specific scope of work. Required equipment must be available.

Congratulations, you have made it to the end of our series on the SBA bond guarantee program. While this Program can seem complicated, it helps several small businesses get bonded every year. If you might qualify for this program and need a surety bond, feel free to contact Surety1 so that we can help you get the bond you need.

For more information, visit the SBA website. 

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