Having Trouble Getting Bond?
...SBA... Surerty Bond to the rescue

SBA's Surety Bond Guarantee program enables small contractors to obtain the surety bonds necessary to compete for government and non-government contracts. This program offers a guarantee for bid, performance and payment bonds issued by participating surety companies. Surety bonds are often required by government agencies and private firms which are letting contracts for work. SBA's guarantee permits a small business contractor to obtain a surety bond when the company might otherwise be too small or too inexperienced to obtain a bond. As a result, this program makes the bonding process accessible to small and emerging contractors, who use this program to establish a bonded track record and who may eventually be able to obtain bonding without SBA's guarantee.

Eligibility
Generally, all small businesses, whether they are sole-proprietorships, partnerships, or corporations are eligible to participate in SBA's surety bond guarantee programs (please refer to SBA 13 CFR Part 115.13 for specific eligibility criteria).   You do not have to be an 8(a) contractor in order to participate in SBA's surety bond guarantee programs.  However, 8(a) contractors who meet the program requirements are welcomed to participate.   You can receive a SBA guarantee even if you are not a U.S. citizen. However, you must be a legal alien bearing a registration card, which entitles you to work in the United States. Illegal aliens are not eligible.

How It Works
SBA's contractual relationship, as it pertains to the guarantee, is directed with the surety company or its agents and/or managing general agents. It is the surety company who issues the bond to a small business contractor. Therefore, a small contractor must first find an agent or surety company.

The SBA can guarantee bonds for contracts up to $1.25 million, covering bid, performance and payment bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, and thereby strengthens a contractor's ability to obtain bonding and 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.

Types of Eligible Bonds
Bid bonds and final bonds are eligible for an SBA guarantee if they are executed in connection with an eligible contract and are of a type listed in the "Contract Bonds" section of the current Manual of Rules, Procedures and Classifications of the Surety Association of America (SAA).

Ancillary bonds may also by eligible for SBA's guarantee. (For more information and clarification, please contact our nearest field office).

Size of Eligible Contracts
The SBA can guarantee bonds for contracts up to $1.25 million.

SBA Guarantee
The SBA reimburses a participating surety (within specified limits) 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. Activity is accomplished through the Prior Approval program or the Preferred Surety Bond (PSB) program.

Under the Prior Approval program, the agent reviews the application package and recommends it to the Surety Company for approval. If the Surety Company agrees to issue a bond with the SBA guarantee, the package is forwarded to the appropriate SBA/SBG Area Office and evaluated by SBG personnel. If the applicant is determined to be qualified and approval is reasonable in light of the risk, SBA may issue a guarantee to the surety company. The surety then issues the bond to the contractor. SBA's guarantee agreement is with the surety company not with the small business contractor.

Any surety company certified by the U.S. Treasury to issue bonds may apply for participation in the Prior Approval program, but its bonds are subject to SBA's prior review and approval.

Contractors bonded under this program are generally smaller and less experienced than contractors bonded under the Preferred Surety Bond (PSB) program. To compensate surety companies for the risk associated with bonding Prior Approval contractors, SBA guarantees 90 percent of the losses incurred on bonds up to $100,000 and on bonds to socially and economically disadvantaged contractors, and 80 percent of the losses incurred on all other bonds under this program.

The Preferred Surety Bond (PSB) program was established by Public Law 100-590 in November 1988.

The PSB program provides a 70 percent guarantee to participating sureties, but in exchange, prior SBA approval for each bond is not required. Under this program, the SBA gives selected sureties the authority to issue, monitor and service bonds without our prior approval. 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. Sureties participating in this program cannot participate in the Prior Approval program.

PSB surety companies serve more experienced contractors that demonstrate the potential for growth and consistently have more active work programs. PSB sureties expect the contractors to graduate from the program in approximately three years. This program is managed by SBA's Office of Surety Guarantees in Washington, DC.

Duties of Contractor
Contractors should apply for a specific bond with an agent or surety company of their choice, providing background, credit and financial information required by the surety company and the SBA.

The contractor must complete the following forms, which are available from participating agents (a list of agents is available from your local SBA district office www.sba.gov).

• SBA Form 994 Application for Surety Bond Guarantee Assistance

• SBA Form 912 Statement of Personal History (on first application and once every two calendar years thereafter)

• SBA Form 994F Schedule of Uncompleted Work on Hand (required initially and then at least quarterly)

• SBA Form 1624 Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transactions

• SBA Form 1261 Statement of Laws and Executive Orders 

Duties of Surety Company
After the contractor completes the forms and furnishes the surety company with sufficient underwriting information, the surety company processes and underwrites the application in the same manner as any other contract bond application. The surety company decides whether to:

• Execute the bond without the SBA's guarantee;

• Execute the bond only with the SBA's guarantee; or

• Decline the bond even with the SBA's guarantee.

If the surety company determines an SBA guarantee is required in order to provide the bond, it completes an SBA Form 994B: Underwriting Review and the SBA Form 990: Guarantee Agreement. If the guarantee is given under the Prior Approval program, these forms - and supporting documents - are submitted along with the Forms 994, 912, 994F, 1624 and 1261 to the appropriate SBA/SBG Area Office. If the guarantee is given under the PSB program, the surety collects the forms.

If a contractor is unable to obtain a bond on reasonable terms and conditions without an SBA guarantee, an SBA guarantee may be granted. On the other hand, a contractor must not obtain some of his/her bonded work without a SBA guarantee and other work with the SBA guarantee. All bonded work must be SBA guaranteed.  Currently, SBA charges the contractor a fee of $6.00 per thousand dollars of the contract amount.  SBA does not charge a contractor for bid bond guarantees. The contractor's fee applies to final bond guarantees only.  Generally it takes three to five days for an SBA/SBG Area Office to process a properly completed application for an SBA guarantee.

Since SBA's contractual relationship is with the surety, SBA does not interact directly with contractors. Therefore, you should contact your agent/surety to find out the status of your application for a SBA guarantee.  If SBA guarantees a bid bond on a contract the final bond will also be covered by the guarantee, if the contractor is awarded the job. Nevertheless, if the surety and/or SBA receive adverse information before the final bonds are executed, SBA may decline to guarantee the final bonds.

Your SBA guaranteed bond is a tri-partite agreement between you the contractor, SBA, and the surety. If your subcontractors fail to satisfactorily complete their portion of the work, and thus causes a breach in your general contract with the obligee, the obligee has recourse under your SBA guaranteed bond. On the other hand, if the subcontractors have been bonded back, then you have recourse under their bonds.  SBA does not require a contractor to participate in its surety bond guarantee program for a specific period of time, before trying to obtain bonding on their own. This discretion is left to the contractor and its agent/surety. There is no limit on the length of time that a contractor may participate in SBA's surety bond guarantee programs; however, the goal is to help contractors to become bondable without SBA's assistance. SBA wants to help contractors grow and graduate from our program into the standard surety market. We have many programs and services that can help not only improve your cash flow but also to resolve other business management problems. Our services range from business counseling and training to financial assistance and help with Federal government contracting.

What type of material is needed for the program?  Most surety companies will (at a minimum) require the following:

• An organizational chart

• Current financial statements (prepared by an accountant or CPA)

• Financial statements for the last two years

• Resumes of key people

• Record of contract performance

• Status of work in progress

• A business plan