For small and emerging contractors, obtaining surety bonds can be one of the biggest barriers to winning construction work. The SBA Surety Bond Guarantee Program addresses this challenge by helping contractors who might not otherwise qualify for bonding. Here's how the program works and how to take advantage of it.
Understanding the SBA Bond Guarantee Program
The U.S. Small Business Administration (SBA) operates a surety bond guarantee program that encourages surety companies to bond small contractors who cannot obtain surety credit through regular commercial channels.
How It Works
The SBA provides a guarantee to the surety company:
- SBA guarantees up to 90% of the bond
- Surety retains 10% or more of the risk
- Lower risk makes sureties more willing to write bonds
- Enables bonding for contractors who'd otherwise be declined
Program Goals
The program aims to:
- Help small businesses compete for government contracts
- Support emerging contractors in building track records
- Enable growth for businesses with limited financial resources
- Increase small business participation in construction
Two Program Options
Prior Approval Program
For bonds up to $250,000:
- Surety requests SBA approval before issuing
- SBA reviews contractor and project
- Guarantee issued if requirements met
- More oversight but broader access
Preferred Surety Bond Program (PSB)
For qualified sureties:
- Surety has authority to issue without prior SBA approval
- Faster turnaround for contractors
- Bond limits up to $6.5 million per contract
- Total limit up to $10 million outstanding bonds
Most contractors work through the PSB program for its speed and higher limits.
Eligibility Requirements
Business Qualifications
To use the program, your business must:
- Be a small business under SBA size standards
- Have adequate experience in the work being bonded
- Demonstrate management capability
- Show character and integrity
- Not be debarred from government contracting
Project Requirements
The project must:
- Be a construction, service, or supply contract
- Require a bid, performance, or payment bond
- Not exceed program limits
- Be a legitimate commercial opportunity
What Disqualifies You
The program will not help if:
- You've previously defaulted on SBA-backed bonds
- You have unresolved tax liens
- You're debarred or suspended
- Your principals have certain criminal convictions
- You have excessive outstanding bonds
Coverage Limits
Bond Amounts
Current program limits:
| Program Type | Maximum per Contract | Maximum Total | |--------------|---------------------|---------------| | Prior Approval | $250,000 | Varies | | PSB | $6,500,000 | $10,000,000 |
Bond Types Covered
The program guarantees:
- Bid bonds: Required to submit proposals
- Performance bonds: Guarantee contract completion
- Payment bonds: Protect subcontractors and suppliers
- Ancillary bonds: Maintenance, warranty bonds
How to Apply
Step 1: Find a Participating Surety
Locate a surety bond producer (agent) who works with the SBA program:
- Search the SBA's list of participating sureties
- Ask your current surety if they participate
- Contact your local SBA office for referrals
- Work with a broker familiar with the program
Step 2: Gather Required Information
Prepare documentation including:
Business Information
- Corporate documents (articles, bylaws)
- Business licenses and registrations
- Organizational chart
- List of principals and their backgrounds
Financial Documents
- Reviewed or audited financial statements
- Current balance sheet
- Bank statements
- Tax returns (typically 3 years)
Experience Documentation
- Completed project list
- References from owners
- Resume of key personnel
- Equipment and asset listing
Project Information
- Contract documents or bid solicitation
- Project scope and specifications
- Your bid or proposed contract amount
- Construction schedule
Step 3: Submit Application
Work with your surety agent to:
- Complete the SBA bond guarantee application
- Provide all required documentation
- Answer underwriting questions
- Submit to the surety for processing
Step 4: Underwriting Review
The surety (and SBA if Prior Approval) evaluates:
- Your financial capacity
- Technical ability for the project
- Management experience
- Character of principals
- Project-specific risks
Step 5: Bond Issuance
If approved:
- Surety issues the bond
- SBA guarantee is in place
- You submit bond with your bid
- Program fee is added to premium
Program Costs
Premium Costs
Bond premiums with SBA guarantee are typically:
- Similar to commercial rates: 1-3% of contract value
- Risk-adjusted pricing: Higher risk = higher premium
- Annual renewal: For bonds lasting over one year
SBA Fee
The SBA charges a guarantee fee:
- Prior Approval Program: Approximately 0.729% of contract price
- PSB Program: Approximately 0.6% of contract price
- Fee is per contract, not per bond type
Example Cost
For a $500,000 contract:
Performance/Payment Bond Premium (2%): $10,000
SBA Guarantee Fee (0.6%): $3,000
Total Bonding Cost: $13,000
Building Toward Standard Bonding
The Goal: Graduate Out
The SBA program is meant to be transitional:
- Build your track record with bonded projects
- Strengthen financial statements over time
- Establish relationship with surety
- Eventually qualify for standard bonding
Steps to Build Capacity
Complete Projects Successfully
- Finish on time and budget
- Maintain clean payment records
- Document your success
Strengthen Finances
- Retain earnings in the business
- Build working capital
- Improve balance sheet ratios
Grow Systematically
- Take on progressively larger projects
- Don't overextend too quickly
- Build organizational capacity
Maintain Good Standing
- Pay bills on time
- Meet all contractual obligations
- Communicate proactively with surety
Common Mistakes to Avoid
Application Errors
- Incomplete documentation: Slows process, may cause denial
- Outdated financials: Must be current
- Omitting negative information: Better to disclose upfront
- Unrealistic project scope: Bidding beyond capability
Program Usage Issues
- Waiting until deadline: Start process early
- Not working with experienced agent: Program knowledge matters
- Overextending too quickly: Building capacity takes time
- Poor project selection: Not every job is worth bonding
Special Considerations
Minority and Disadvantaged Contractors
The SBA program supports:
- 8(a) Business Development Program participants
- HUBZone certified businesses
- Women-owned small businesses
- Service-disabled veteran-owned businesses
These contractors may receive:
- Priority processing
- Technical assistance
- Connections to bonding professionals
- Support from SBA district offices
Startup Contractors
New contractors face extra challenges:
- Limited project history
- Thin financial statements
- No established surety relationship
The SBA program can help, but you'll need:
- Strong personal financials
- Relevant prior experience (even if different company)
- Solid project opportunity
- Reasonable scope for your capabilities
Alternative Bonding Resources
State Bonding Programs
Some states offer additional bonding assistance:
- State guarantee programs
- Technical assistance programs
- Small contractor development programs
- Bonding capacity building initiatives
Contractor Development Programs
Organizations that help build bonding capacity:
- Minority contractor development councils
- Trade association programs
- Community development financial institutions
- Contractor incubator programs
Working with Your Surety Agent
Choosing the Right Agent
Look for an agent who:
- Has experience with SBA bond program
- Understands construction industry
- Works with multiple surety companies
- Can advocate for your application
- Provides guidance on improving bondability
Building the Relationship
Successful contractor-surety relationships require:
- Regular financial updates
- Transparent communication
- Early notification of large opportunities
- Professional project management
- Prompt payment of premiums
Conclusion
The SBA Surety Bond Guarantee Program opens doors for small and emerging contractors who might otherwise be locked out of bonded work. While the program involves additional steps and costs, it provides a pathway to building the track record and financial capacity needed for standard commercial bonding.
If you're a small contractor struggling to get bonded, explore the SBA program with a knowledgeable surety agent. With successful projects under your belt, you'll build the credibility to eventually qualify for standard bonding on your own.
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