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SBA Surety Bonds, Pt. 2: Applying is Easier than You Think

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by: nicoj
Updated: Friday, December 28, 2012 - 14:53
Created: Tuesday, April 3, 2012 - 10:44

SBA Surety Bonds, Pt. 2:  Applying is Easier than You Think

Are you a small contractor bidding on work that requires a surety bond?  Or, do you have questions about what a surety bond is, why you might need one, and how to get one?

If so, SBA may be able to help.

SBA guarantees surety bonds for small contractors that might not qualify otherwise – and the process of getting a guarantee is easier and faster than you might think.  In fact, SBA’s Office of Surety Guarantees usually reviews applications for bonds within 2 days.

This blog is the second in our series on SBA’s Surety Bond Guarantee Program and how your small business can use SBA’s guarantee to obtain a surety bond and bid on and win contracts.    In this blog, we’ll go more in-depth about the different types of surety bonds offered and give more details about eligibility and how to apply.    

What’s a Surety Bond?

First things first: what’s a surety bond, anyway?   Essentially, a surety bond is an assurance that a contract will be performed properly.  For the nitty gritty details, take a look at Part 1 in our blog series on the Surety Bond Guarantee Program.

The Surety Bond Guarantee Program

Through the Surety Bond Guarantee Program, SBA helps small and emerging contractors gain access to the surety bonds they need to win those initial contracts and later qualify for larger contracts.

Bond Types

Under the program, SBA guarantees three types of surety bonds:

·        Bid Bond: This bond guarantees that the bidder will be able to obtain payment and performance bonds if they are awarded the contract.

·        Payment Bond: Assures that suppliers and subcontractors will be paid.

·        Performance Bond: Guarantees that the contract will be completed.

Eligibility

Because SBA does not offer surety bonds directly, your first step in qualifying for the SBA guaranteed bond requires applying with a surety company or agent representing a surety company.  To find an agent that fits your needs, see the SBA-approved list of bonding agents by state (PDF).

The underwriting for surety bonds varies depending on the surety company, but there are a few key factors – known as the “three C’s” that most sureties consider when evaluating your application:

·        Capital: Having enough liquidity and cash flow to complete the project, sufficient bank account balances and manageable debt are important factors in your company’s profile.

·        Capacity: Sureties assess your previous projects and past performance, and whether you fully understand the project’s scope of work, and whether you are qualified for the specific work in the contract.

·        Character: Sureties, their agents or brokers, will also look at your company’s management, including information about specific principals, in order to further assess the application.

Additionally, you’ll need to meet these SBA requirements (summarized here):

  • Your business must not be able to secure a surety bond without the SBA guarantee program.
  • Your contract or subcontract must be valued at $2 million or less.
  • Your business must be independently owned and operated.
  • Your business must qualify as “small” under federal regulations.  If you’re a construction, service or supply contractor, you’ll need to qualify as “small” according to the NAICS code/ SBA size standards.

The Application Process – It’s Easier than You Think

We invite you to apply.  Here are some simple steps to get the process rolling:

  1. Find a surety company or agent and apply: Since SBA does not issue surety bonds directly, you’ll need to obtain one through a surety company or agent, then get it guaranteed by SBA.  To find an agent, that fits your needs, see the SBA-approved list of bonding agents by state (PDF), or call the Office of Surety Guarantees at (202) 205-6540.  
  2. Go through the underwriting process: Your surety company will underwrite your application; if it deems that your surety bond needs an SBA guarantee, it will proceed with the application to SBA
  3. Wait for SBA processing: SBA will review your application – in as little as two days!  To expedite the review process, please make sure you complete the application fully and properly. 

Got questions? Call SBA’s Office of Surety Guarantees at (202) 205-6540.

Additional Resources

·        Surety Bond Information on SBA.gov

·        Surety Bond Guarantee Application information page on SBA.gov

·        SBA’s List of SBA-Approved Bonding Agencies by State

·        Information on Surety Bond Guarantee fees

·        Application Forms page

·        Blog article outlining surety bonds on the SBA Community                

 

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. 

Type: Community Blog