Surety Bond Professionals is a family-owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist you with getting a bond backed by the SBA Bond Guarantee Program.
What Is It?
The Small Business Administration (SBA) doesn’t issue surety bonds. Rather, it provides a guarantee that makes it possible for qualified small businesses to obtain surety bonds that they might not otherwise be approved for. This program can potentially allow a contractor to achieve larger limits than they might qualify for in the standard markets or become bonded for the first time and “open the doors to bonding.”
Who Qualifies for It?
To qualify for assistance from the SBA Surety Bond Guarantee Program, a business must meet certain criteria related to:
- Business size. Applicants must meet the SBA’s definition of a small business.
- Type of surety bond sought. Only contract bonds such as bid bonds, performance bonds, and payment bonds are guaranteed. License bonds are not eligible.
- Contract size. Non-federal contracts for less than $6.5 million and federal contracts up to $10 million qualify for an SBA guarantee.
- Underwriting standards. Applicants must meet the SBA’s underwriting standards for credit, capacity, and character.
The SBA Surety Bond Guarantee Program works with the surety companies by guaranteeing a portion of the bond on behalf of the surety company. This allows bonding companies to provide support for tougher-to-write cases, and to increase bonding capacity for small businesses. Applications to the SBA for a surety bond guarantee are submitted by either the bonding company or agent rather than by the small business directly. If an application is approved, the surety company gains the confidence to issue a surety bond.
Speak with a Surety Bond Professionals agent today to discuss your bonding needs.
How Does It Work?
The surety bond agreement for a contract bond guaranteed by the SBA is a legally binding contract among three parties. The “obligee” is the private or government project owner (or general contractor) requiring the contract bond, not the SBA.
When a claim is filed against a contract bond backed by the SBA Bond Guarantee Program, the process is the same as with any other surety bond claim: the bonding company (the “surety”) makes sure the claim is valid, pays it on behalf of the bonded business (the “principal”), then collects reimbursement from the principal.
The only difference with an SBA-guaranteed bond is that the SBA covers much of the principal’s debt to the surety (80-90%) if the principal does not reimburse the surety in full.
What Do They Cost?
The principal pays a premium for the contract bond that is only a small percentage of the bond’s penal sum. The surety assigns the principal a premium rate that is based on its underwriters’ assessment of the risk involved. Underwriters will review the principal’s personal credit score, personal finances, business finances, and industry experience. The more creditworthy the surety’s underwriters believe the principal is, the lower the premium rate.
In addition to the bond premium, the principal must pay the SBA a small flat fee (currently 0.6%).
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Our surety bond professionals will help you get the construction bond you need through the SBA Surety Bond Guarantee Program with the largest single/aggregate capacity and best terms possible.