SBA Surety Bond Guarantee Program Explained

Oftentimes, small businesses face obstacles getting the help they need to succeed. Big businesses often have the advantage of name recognition and financial wherewithal. For many, obtaining a surety bond is a way of life. Small businesses often get overlooked.  They may lack the financial strength to obtain bonding without assistance. The Small Business Administration (SBA) hopes to change that through the SBA Surety Bond Guarantee Program. The SBA wishes to enable these small and emerging businesses so that they can eventually be bonded without any SBA assistance.

Surety bonds act as a safeguard on a project. The bonds ensure to project owners that the contractors will finish the work and pay suppliers and subcontractors. The contractors work through surety companies or agents of surety companies to obtain these bonds. By federally ensuring small businesses who need bonds the SBG program encourages surety companies to bond small businesses who previously could not get approval. There are certain contracts and bonds that the SBA can and cannot ensure.

Types of bonds that can go through the SBA:

• Bid Bonds
• Performance Bonds
• Payment Bonds
• Ancillary Bonds
• Dual/Multiple Obligee Bonds

Types of bonds that are not eligible to go through the SBA:

• Advance Payment Bonds
• Bid Bonds on a job already bid
• Completion Bonds
• Contract that prohibits the surety from performing the contract if a default occurs
• Financial Guarantee Bonds, except Timber Sales Contracts
• Lease Bonds (i.e. Gas, Oil, Coal, etc.)
• License and Permit Bonds
• Maintenance Bonds, except if ancillary to an SBA guarantee bond
• Reclamation Bonds for New Mining
• Release of Lien Bonds
• Subdivision Bonds
• Warrant of Fidelity
• Warranty of Performance of Efficiency

The SBG Program consists of two different types of programs: the Prior Approval Program and the Preferred Program.

SBA Surety Bond Guarantee Program Prior Approval Program:

To qualify for this program the business must first be evaluated and approved by a surety company. They must prove that they can finish the work and that they possess the capacity as well as the prior training to manage issues that could arise during the term of the bond. After an application is checked and accepted by the SBA, the SBA will assume 90% of the potential losses on contracts. This guarantee is limited to contracts valued at up to 100,000 or on contracts affiliated with the following categories of businesses:

• Socially and economically disadvantaged small businesses
• Historically Underutilized Business Zones (HUBZone) Program small businesses
• 8(a) Business Development Program small businesses
• Veteran or Service-Disabled Veteran-Owned small businesses

The SBA can also promise an 80% collateral for independent agreements up to 6.5 million dollars. The contract can be in the amount of up to 10 million if a Federal Contracting Officer determines the necessity of an SBA guarantee for the small business to get bonded.

In addition, if the project is priced at below 250,000 a Quick SBA Surety Bond Guarantee Application and Agreement can be used. This significantly reduces the amount of time and paperwork involved with getting bonded.

SBA Surety Bond Guarantee Program Preferred Program

This program empowers surety companies to give out, oversee, and upkeep bonds without previous confirmation from the SBA. With this program, there is a 70% guarantee on the project.

After understanding what types of bonds the SBA guarantees, the next step would be to apply. While this may seem confusing, our next blog covers what the application package looks like and what forms are required so that you know how to best get bonded.

For more information, visit the SBA’s website