SBA Guarantee Bond Program | Monday December 29th, 2003 | |
Bond Program (Prior Approval or Preferred Surety):
The SBA can guarantee bonds for contracts up to $2 million for bid, performance and payment bonds for small and emerging contractor who cannot obtain surety bonds through regular commercial channels. The bonds are issued by participating surety companies, approved by the SBA. There are two Bond programs available: the Prior Approval or the Preferred Surety Bond Program; the guarantee to the surety company ranges from 70% to 90%, depending on the Program and amount.
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 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 surety guarantee is an agreement between the surety company and SBA in which SBA reimburses the participating surety (within specified limits) in the event the contractor defaults on 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 $2 million.
Under the Prior Approval program, any surety company certified by the U. S. Treasury to issue bonds, may apply for participation under the Bond Program. However, the applicant is subject to SBA’s prior review and approval. If the applicant is determined to be qualified and approved, SBA may issue a guarantee to the surety company. The surety company then issues the bond to the contractor. For socially and economically disadvantaged contractors, SBA may guarantee up to 90% of the losses incurred on the bond, up to $100,000; for all other bonds, SBA guarantees 80 percent on the losses incurred. Note that SBA's guarantee agreement is with the surety company and not with the small business contractor.
Under the Preferred Surety Bond Program (PSB), SBA 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 (14) 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.
Costs associated with obtaining an SBA Surety Bond Guarantee:
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.
Processing Time:
Generally it takes three to five days for an SBA/SBG Area Office to process a properly completed application for an SBA guarantee.
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).
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1
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SBA Form 994 Application for Surety Bond Guarantee Assistance;
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2
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SBA Form 912 Statement of Personal History (on first application and once every two
calendar years thereafter);
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3
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SBA Form 994F Schedule of Uncompleted Work on Hand (required initially and then at
least quarterly);
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4
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SBA Form 1624 Certification Regarding Debarment, Suspension, Ineligibility and
Voluntary Exclusion Lower Tier Covered Transactions
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5
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SBA Form 1261 Statement of Laws and Executive Orders.
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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:
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Execute the bond without the SBA's guarantee;
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Execute the bond only with the SBA's guarantee; or
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Decline the bond even with the SBA's guarantee.
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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.
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.
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.
Question: What type of material is needed for the program?
Most surety companies will (at a minimum) require the following:
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An organizational chart.
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Current financial statements (prepared by an accountant or CPA).
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3
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Financial statements for the last two years.
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4
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Resumes of key people.
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5
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Record of contract performance.
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6
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Status of work in progress.
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7
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A business plan.
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