SBA Makes Changes to Surety Bond Program

Two major changes are now in effect across the country that will help small businesses grow and gain new opportunities. The Small Business Administration (SBA) announced changes to the Surety Bond Guarantee Program earlier this month, and they became official Sept. 20. The amendments from the SBA were initially proposed and published in the Federal Register last month.

The Preferred Surety Bond Program guarantee percentage has increased from no more than 70% to no more than 90% in certain cases. The guarantee will be granted “if the original contract amount is $100,000 or less, or if the bond is issued to a small business that is owned and controlled by socially or economically disadvantaged individuals, veterans, service disabled veterans, or certified HUBZone and 8(a) businesses. All other guarantees will be 80%,” according to the SBA.

The increase to 90% “will stimulate greater participation of surety companies in the programs,” said National Association of Surety Bond Producers CEO Mark McCallum in Engineering News-Record. “That, in turn, gives greater opportunities to small and emerging contractors, who might not otherwise qualify for a surety credit in the standard market.”

The Quick Bond eligibility contract limit was also increased from $250,000 to $400,000 to “provide greater bonding opportunities for small contractors,” said the Federal Register. “This action reduces the administrative burden that results in cost savings to the sureties,” it added. The Quick Bond is designed for a streamlined process with less paperwork to allow “small business to bid on and compete for contracting opportunities without delay,” explained the SBA.

“This can be beneficial for disadvantaged subcontractors working directly for the owner,” said Connie Baker, CBA, director of operations with NACM’s Secured Transaction Services. It gives them opportunities to bid on projects they may not have been able to before due to limited financial resources. “They can bid on bigger projects with less paperwork.”

“There are over 75,000 small construction firms in New Jersey that can benefit from the new changes made to SBA’s Surety Bond Guarantee Program" said SBA New Jersey District Director Al Titone in an article from the Cape May County Herald. “It certainly will help small contractors to secure contracts with municipal, state and federal projects, as well as opportunities with the private sector."

All federal construction projects require a surety bond if larger than $150,000, and contractors may also be required to submit a bid bond to bid on the federal contract. Generally, the surety bond is broken down into two types: the bid bond, which lets the project owner know the contractor will be able to obtain a performance bond if awarded the contract and the performance/payment bond, also known as the final bond.

Public and private contracts and subcontracts valued at $6.5 million or less are eligible for an SBA bond guarantee. The SBA is able to guarantee federal contracts up to $10 million, and “there is no limit to the number of bonds that can be guaranteed for any one contractor,” the administration said.

The SBA provides a list of surety companies as well as agents that represent the companies, however, the administration itself does not issue bonds—it guarantees them from participating surety companies.