In our last article, we discussed “All About Bonds in Government Contracting”. This week we are going to dive further into the topic by discussing an option available for small businesses just getting started in government contracting. Today’s topic is “SBA’s Surety Bond Program”.
SBA’s Surety Bond Program is not only for new government contractors but also seasoned small businesses. These surety companies can help any small business navigate the contracting maze by providing great advice to help you gain more contracts. Your fees could be lower than what you are presently paying but you will not find out unless you talk to an agent. Most importantly, SBA’s Surety Bond Program is for small businesses that are having a hard time obtaining bonding from other surety companies.
What is SBA’s Surety Bond Program?
SBA guarantees the surety bonds for approved surety companies which allows these companies to offer surety bonds to small businesses that might not meet the eligibility criteria for other sureties. Many small businesses first starting government contracting utilizing the SBA Surety Bond program.
How Does the Program Work?
- Businesses request surety bonds because they want to perform work.
- Authorized surety companies provide surety bonds to businesses that meet their qualifications.
- The SBA guarantees surety bonds for these private surety companies. This allows more small businesses to qualify.
- Small businesses get SBA-guaranteed surety bonds so they can get to work.
Commercial or Contract bonds
Small businesses may need a contract or commercial bond depending on the type of work being performed. Unfortunately, SBA guarantee does not cover commercial bonds. The SBA guarantees only cover contract bonds. Contract bonds fulfill the specific terms of the contract. Whereas, commercial bonds apply to applicable laws and regulations. Government agencies require certain companies or individuals to obtain commercial bonds, which protect the general public against things like fraud.
Types of Bonds
- Bid Bond – Provides full payment and performance bonding from the contract bidder.
- Payment Bond – Ensure full payment to the suppliers and subcontractors.
- Performance Bond – Provides full completion of a contract by small business.
- Ancillary Bond – Ensures completion of requirements outside of performance or payment, such as maintenance.
Bond Guarantee Fee
Unfortunately, SBA does not provide this service for free. Because all performance and payment bond guarantees require small businesses to pay the SBA’s fee of .729% of the contract price. This is a small price to pay when compared to other surety bond agencies. Furthermore, this fee helps support the SBA Surety Bond Program.
Need to cancel the bond? Don’t worry you can receive a refund for the fee. Most importantly, SBA does not charge a bid bond guarantee fee.
Here is an example of the cost for an SBA guaranteed bond. A contract for $1,000,000 would result in a bond fee of $7,290. You will send SBA the fee. Unfortunately, this is not the only fee. The surety company will receive a premium fee. This fee too can range from 1.5% to 3% of the contract amount. In our previous example, a contract for $1,000,000 would result in a premium fee of $15,000 (1.5%) to $30,000 (3%). The total cost for the bond would be $22,290 to $37,290. If your surety company considers you a high risk you can definitely save money by selecting an SBA approved surety company. Many high-risk companies pay up to 10% in premium fees. Imagine the amount of money you can save using the SBA Surety Bond Program.
If you have good credit you can get a bonding fee of 0.75% to 2.5%. Do you have bad or no credit? If you do expect to pay rates up to 10%. Why? Because bad or no credit equals high risk. More importantly, if you are in this category please consider the SBA Surety Bond Program.
- Does your business qualify as a small business according to SBA’s size standards? Fortunately, SBA’s programs are for small businesses only.
- Do you have a contract? You can receive up to $6.5 Million for non-federal contracts and up to $10 million for federal contracts. No contract necessary to get started. In fact, it is better to meet with a surety bond agent and have them determine your bonding limits before you bid on any contract.
- Furthermore, does your business meet your surety company’s credit, capacity and character requirements?
Where do I find a surety bond agency?
Are you interested in finding a surety company in your local area? If so, check SBA’s website for the database of surety agencies that offer SBA-guaranteed bonds. Also, remember to subscribe to our articles so you never miss a new release. Because you enjoyed this article check out our blog or listen to our podcast!
SBA Surety Bond Program – https://www.sba.gov/funding-programs/surety-bonds
FAR Part 28 Bonding http://farsite.hill.af.mil/vmfara.htm
Federal Contracting Made Easy – www.federalcontractingmadeeasy.com
Byerly Enterprises www.byerlyenterprises.com
Contact Nancy – Nancy@byerlyenterprises.com