U.S. Small Business Administration

Surety Bond Guarantee Program

for Small Businesses

The Basics – What to Look For

• Contract Surety Bonds:

 Contract bonds & why they are required

 Surety’s underwriting focus

• SBA Surety Bond Guarantee Program:

 Program parameters

relationship is with the agent.

Surety: corporate entity legally responsible for paying claims after a Principal

has defaulted and SBA’s program partner.

Obligee: project owner who contracts with the Principal for the performance of

a contract. If the Principal defaults on a project the Obligee is made whole by

the Surety.

What is a Surety Bond?

Federal Government: all Federal construction contracts greater than

have adopted similar provisions referred to as “Little Miller Acts”

Private Sector: many private sector Obligees also require surety bonds

Pre-Qualification & Bonding Capacity

• Pre-qualifying means knowing what your bonding capacity will be in

advance of bidding or negotiating to assure bonds will be available

– Setting up bonding may take several weeks

• Know Your Bonding Capacity:

 Single Contract Bond Limit (i.e. $300,000)

 Total Aggregate Bonding Capacity (i.e. $2,000,000)

 Approved Type of Work

– Working capital, net worth, debt to equity ratio, profitability

– CPA prepared typically required for $1 million & larger job sizes

– Banks & Suppliers

What is Working Capital?

• Measures business’s ability to meet current and future financial

obligations

primary industry it and the affiliates are engaged in

• Based on average annual revenues for the last three fiscal years

compared with established NAICS (North American Industry

• Construction Firms –

• $ 15 million for specialty trades such as:

 electrical (238210) or roofing (238160)

 commercial construction (236220) or highway, street

and bridge (237310)

• www.sba.gov/size

• Maximum Contract Size: $6.5 million

 Up to $10 million on Federal prime contracts with contracting

 Not be debarred from doing business with the Federal Government

 Not be on probation or parole or in bankruptcy

 Must be current on all taxes

• FAST Approval

• Relaxed SBA Underwriting

– Eliminates Business and Personal Financial Statements for SBA

• All Types of Work Excluding Environmental, Demolition, Timber Sales

• Liquidated Damages Up to $1,000/Day and Maintenance Terms Up to

• Same Guarantee Percentages

Fees for SBA Bond Guarantees

• Bid Bonds: No fee

• Performance/Payment/Maintenance Bonds:

 SBA Guarantee Fee: .729% of the Contract Amount

 Surety’s Bond Premium: 1.5% - 3% of the Contract Amount

Include these costs in bid estimates and initial pay requests to

ensure reimbursement by the Obligee.

Costs of Bonding Example

$ 9,000 1.8 % Surety’s Bond Premium ($500,000 X 1.8%)

3,645 .729% SBA’s Guarantee Fee ($500,000 X .729%)

$12,645 Total Cost for Bonds

 currently less than 2 days on average

• Use SBA’s list of Bonding Agencies by State available at:

www.sba.gov/osg

• Contact an SBG Area Office or SBA District Office for a referral

Florida Agents