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A surety bond is a three-party instrument between a surety (someone who agrees to be responsible for the debt or obligation of another), a contractor and a project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed.
SBA does not issue surety bonds; rather, it provides and manages surety bond guarantees for qualified small and emerging businesses through the Surety Bond Guarantee (SBG) Program. SBA reimburses a participating surety (within specified limits) for the losses incurred as a result of a contractor's default on a bond. The SBG Program is administered through the Office of Surety Guarantees (OSG) in a public-private partnership with surety companies and their agents, utilizing the most efficient and effective operational policies and procedures.
The SBG Program was developed to help small and minority contractors who cannot obtain surety bonds through regular commercial channels. Through the program, SBA makes an agreement with a surety guaranteeing that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract. SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, thereby strengthening a contractor's ability to obtain bonding and greater access to contracting opportunities.
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