The SBA guarantees surety bonds
Surety bonds help small businesses win contracts by providing the customer with a guarantee that the work will be completed. Many public and private contracts require surety bonds, which are offered by surety companies. The SBA guarantees surety bonds for certain surety companies, which allows the companies to offer surety bonds to small businesses that might not meet the criteria for other sureties.
How the SBA Surety Bond Program works
Surety bonds are requested
Some contracts require that the business doing the work be properly bonded.
Surety partners with business
Authorized surety companies provide surety bonds to businesses that meet their qualifications.
The SBA guarantees
The SBA guarantees surety bonds for private surety companies, so more small businesses can qualify.
Small businesses benefit
Small businesses get SBA-guaranteed surety bonds so they can get to work.
Contract or commercial bonds
Depending on the the type of work, a business may be required to obtain a contract bond or a commercial bond.
The SBA guarantees contract bonds, but doesn’t guarantee commercial bonds. Contract bonds ensure the terms of a specific contract are fulfilled. Commercial bonds ensure all applicable laws and regulations are followed. Government agencies require certain companies or individuals to obtain commercial bonds, which protect the general public against things like fraud.
The right surety bond for the project
Some contracts require surety bonds that cover specific situations. The SBA guarantees surety bonds that cover several major categories of work.
Bid
Ensures full payment and performance bonding from the contract bidder.
Payment
Ensures full payment to the suppliers and subcontractors.
Performance
Ensures full completion of a contract by small business.
Ancillary
Ensures completion of requirements outside of performance or payment, such as maintenance.
Bond Guarantee Fee
All performance and payment bond guarantees require small businesses to pay the SBA a fee of .6% of the contract price. If for some reason the bond is cancelled or not issued, the SBA will return the guarantee fee. The SBA does not charge a fee for bid bond guarantees.
Eligibility
Determine your small business’s level of eligibility before obtaining a surety bond. Does your business meet the following requirements?
Be a small business
Qualify as a small business according to the SBA’s size standards.
Have a small contract
Up to $6.5 million for non-federal contracts and up to $10 million for federal contracts.
Pass evaluation
Meet the surety company’s credit, capacity, and character requirements.
Source: U.S. Small Business Administration, “How the SBA Surety Bond Program works” https://www.sba.gov/ website. Accessed July 12, 2022. https://www.sba.gov/funding-programs/surety-bonds
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