The goal of the Small Business Administration’s (SBA’s) Surety Bond Guarantee Program is to allow small businesses to obtain bid bond and payment and performance bonds it needs to further its business enterprise. For various reasons such as weak credit history or low working capital, these small businesses may not be able to obtain the bonding they need in the standard surety marketplace. The SBA supports attaining this goal by providing financial backing, the bond guarantee, to participating surety companies. In other words, the SBA does not work directly with businesses in this program but through a surety company.
How Do I Get Started with the SBA Surety Bond Guarantee Program?
To get started the contractor would first apply for a bond with Schmalz & Associates. Secondly, we would then submit this information to a surety company participating in the SBA Surety Bond Guarantee Program. Thirdly, the surety would conduct their underwriting analysis and if the surety determines that it will issue a bond with the SBA’s guarantee, it will submit an application to the SBA for bond guarantee assistance.
How Does the SBA Surety Bond Guarantee Program Work?
In the SBA Surety Bond Guarantee Program, the maximum single contract bond is $6.5 Million for non-federal contracts and up to $10 Million for federal contracts. The SBA agreement with a surety company says it will reimburse the surety for a specified percentage of losses and expenses incurred as a results of the contractor’s default. The SBA guarantees up to 90% of the bond amount. The issuing surety company is responsible for underwriting, servicing and claims handling on the bond.
How Much Does the SBA Program Cost?
There are no fees for applications or bid bonds. Fees only apply to payment and performance bonds. The contractor or bonded Principal pays a fee of 0.6% of the contract value directly to the SBA to participate in the Surety Bond Guarantee Program. However, this is in addition to the bond premium paid to the surety company. The Principal pays this fee directly to the SBA through Pay.gov during the application and approval process. Please keep in mind that these fees are subject to change by the SBA and we offer here for guidance only.
The SBA receives compensation from the surety company by applying a 20% fee of the bond premium for their guarantee.
The SBA offers financial guidelines that are highly beneficial to participating contractors. They may support bonding capacity up to 20 times working capital. They also may allow any available balance on a Principal’s bank line of credit in their working capital calculation. In addition, financial statements that are prepared internally may also be acceptable in lieu of CPA prepared financial statements.
SBA Surety Bond Guarantee Program Is A Great Start
This is a fantastic program for contractors needing a little help with their surety bond program. Or for contractors that cannot quality for bonding under standard underwriting parameters. Please reach out to Schmalz & Associates for specialized assistance in applying for your SBA Guaranteed Surety Bond Program today! We help contractors throughout Texas with their payment and performance bond needs. Please email us at eric@schmalzsurety.com or call us at 512-640-6444.
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