The U.S. Small Business Administration’s (SBA) Surety Bond Guarantee (SBG) program can guarantee bid, performance and payment bonds for individual contracts of $6.5 million or less for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. There is no limit to the number of bonds that can be guaranteed for any one contractor. SBA’s guarantee gives sureties an incentive to provide bonding for eligible contractors, and thereby provides greater access to contracting opportunities. A surety guarantee, an agreement between a surety and the SBA, provides that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract. The SBA Office of Surety Guarantees (OSG) administers the SBG Program as a public-private partnership between the federal government and the surety industry.
Types of Eligible Contract Bonds: Below are the types of contract bonds that may be covered by an SBA guarantee:
- Bid – Bond which guarantees that the bidder on a contract will enter
into the contract and furnish the required payment and performance bonds.
- Payment – Bond which guarantees payment from the contractor of
money to persons who furnish labor, materials equipment and/or supplies
for use in the performance of the contract
- Performance – Bond which guarantees that the contractor will perform
the contract in accordance with its terms.
- Ancillary – Bonds which are incidental and essential to the performance
of the contract.
- Reclamation – A reclamation bond is eligible if it is issued to reclaim an
abandoned mine site and for a project undertaken for a specific of time.
- Union Bonds – Wage & Welfare Bonds
In addition to the surety’s bonding qualifications, SBA’s eligibility requirements for applying for an SBA bond guarantee are:
- Individual public and private contracts and subcontracts of $6.5 million or
less are eligible. SBA can guarantee a bond for a contract up to $10 million
if a Federal contracting officer certifies that SBA’s guarantee is necessary
for the small business to obtain bonding. There is no limit to the number of
bonds that can be guaranteed for any one contractor.
- The contractor’s business must be independently owned and operated
and qualify under standard federal regulations
The SBA Guarantee
SBA reimburses a participating surety up to the guarantee percentage for the losses incurred as a result of a contractor’s default on a guaranteed bid bond, payment bond, performance bond or any bond that is ancillary with such a bond. The Preferred Surety Bond (PSB) program authorizes selected sureties to issue, monitor and service bonds without prior SBA approval. The SBA guarantee is 70% under this program. Each participating company has a guarantee limit with the SBA. The PSB program was created to encourage the larger surety companies to expand their efforts to help small businesses obtain bonds.
How to Apply
The SBA does not directly bond the contractor. True & Associates would represent you, “the contractor” as a bonding agent who represents an SBA Surety participant. The contractor completes the surety application and the required SBA SBG forms, providing the agent with the required credit, capacity and character information. The agent then underwrites the application and decides whether to execute with or without an SBA guarantee.
David Grossbaum, SVP, CRIS
True & Associates