SBA Surety Bonds, Pt. 3: How Surety Companies Can Partner with SBA
by nicoj, Community Moderator
- Created: April 4, 2012, 10:23 am
- Updated: December 28, 2012, 2:00 pm
Are you a surety bond company or authorized surety agent? Do you underwrite contract surety bonds? If so, SBA may be a valuable partner to you.
SBA guarantees surety bonds for small businesses unable to secure a surety bond through other means – and both small businesses and surety companies can benefit from working with SBA.
This, the third blog in our series, helps surety companies and agents understand the benefits of SBA’s Surety Bond Guarantee Program. For contractor-specific surety bond information, see Part 1 or Part 2.
First, let’s answer the question: “What’s a surety bond?”
A surety bond assures the obligee, the party awarding the contract, that the contract will be successfully completed. Surety bonds are required on any federal construction contract of $150,000 or more as well as many public and private contracts and subcontracts. Surety bond companies, acting as a third party between the “principal” and “obligee,” play a crucial role in this process by underwriting and issuing the actual surety bond for the contract.
Why Partner with SBA?
SBA’s Surety Bond Guarantee Program offers surety companies and agents a valuable government partnership. In the Prior Approval part of the program, for example, SBA guarantees 90 percent of losses incurred on bonds valued up to $100,000, and for bonds on any size contract awarded to socially and economically disadvantaged contractors. Because the SBA guarantee is meant to help small contractors unable to secure a surety bond without the guarantee, participating surety companies and agents also have the opportunity to provide small and emerging contractors with access to contract work.
Preferred vs. Prior Approval
The Surety Bond Guarantee Program has two components: The Preferred Surety Bond Program and the Prior Approval Surety Bond Program. The two programs have separate surety company eligibility criteria, so be sure to select which one fits your needs before applying.
The Preferred Surety Bond Program
Created to encourage large surety companies to expand their support to small business, the Preferred Program gives selected surety companies the authority to issue, monitor and service surety bonds with the SBA guaratee attached, without prior SBA approval. The SBA guarantee is 70 percent. To be eligible for the Preferred Program, a surety company must be a corporation approved by the Treasury Department to issue federal contract bonds; have an underwriting authority of at least $2 million, as certified by the Treasury Department; and vest underwriting and claims authority only in permanent employees of the company.
For additional requirements, visit SBA.gov’s application information page.
The Prior Approval Surety Bond Program
Under this program, surety bond guarantees are subject to SBA approval before being issued. The guarantee rate is 90 percent on contracts valued at $100,000 or less, and for socially and economically disadvantaged small businesses, HUBZone small businesses, and small businesses owned by Veterans or Service-disabled Veterans. For other bonds issued in the program, the guarantee is 80 percent. For eligibility requirements, visit the application information page.
How to Apply:
Surety companies certified by the Treasury Department may apply for either the Preferred or Prior Approval program. Visit our application page to get a better sense of your eligibility and the requirements for each program, or go straight to SBA’s GLS-hosted online application.
Questions? Call SBA’s Office of Surety Guarantees at 202-205-6540 – or check out the following helpful resources:
· Get Started with Surety Bonds on SBA.gov
· How SBA Admits Surety Companies on SBA.gov
· Application Information Page for Surety Companies on SBA.gov
· Application Training for Agents
· Application User’s Manual for Agents
· Program forms page (PDFs) including forms for surety companies/agents
· Treasury-certified surety companies listing
Have your own surety bond questions, comments or insights? Please share and join in on our conversation! You can comment on our surety bond discussion board, follow our surety bond tweets with hashtag #SBAsuretybond, or post on our Facebook wall.
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