Understanding the SBA Surety Bond Guarantee Program

The SBA Surety Bond Guarantee program was developed by the Small Business Administration (SBA) to help small contractors obtain surety bonds. Here are the basics of the SBA Surety Bond Guarantee program. 

How the Program Works

The basic idea behind this program is to provide help to contractors that are too small or inexperienced to afford the surety bonds that are necessary for big jobs. Many times, when a large government job or some other type of commercial job is accepting bids, you have to have a large surety bond in order even to submit a bid. Some contractors have the necessary skills to complete this job but lack the funds or the experience to bid on it.

This creates a scenario where only the large companies that are already established have a chance to get the contract. With the SBA Surety Bond Guarantee program, small contractors can apply for these bonds with a surety bond producer. The SBA will guarantee a portion of the bond and will reimburse the surety bond company if the individual contractor defaults on it. This takes a lot of the risk off of the surety bond providers and makes it possible for smaller contractors to get involved with big projects.

Prior Approval Program

One of the options that is included with the SBA Surety Bond Guarantee program is the prior approval program. With this particular program, the surety bond provider has to submit information to the SBA about each bond request. The SBA will then review each application and make a decision. This program provides the biggest SBA guarantees on the bonds. The SBA will guarantee as much as 90 percent of the cost of the bond if the bond is given to a socially or economically disadvantaged firm, HUBZone or veteran-owned company. If the contractor does not fit into one of these areas, the guarantee will still be 80 percent. 

Preferred Surety Bond Program

The other area of this program is referred to as the Preferred Surety Bond Program. With this program, the SBA selects a certain number of surety bond providers that can make decisions on issuing bonds without SBA approval. When this happens, the SBA will still guarantee the bonds up to a maximum of 70 percent. This means that the surety bond providers will have to take a little bit more risk, but it also means that they can do a lot more business. They can issue surety bonds with SBA guarantees, and they do not have to wait on the approval process that other bonds do. This program is also faster for the individuals that need to get the surety bonds so that they can bid on jobs.

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