Are you a small business contractor or sub-contractor considering on bidding on a contract project that requires a bid bond or have already been awarded contract that requires a Performance and Payment bond? Then you may qualify for the US Small Business Administration (SBA) Surety Bond Guarantee Program. The following tips are to help you understand and work your way through the process to obtaining the bond that you need.
First of all, under the Surety Bond Guarantee Program, the SBA guarantees between 80 and 90% of the losses and expenses incurred by the Surety Company should the small business default and fail to complete the contract. This Government guarantee encourages the Surety Company to issue a bond that it would otherwise not issue to a small business.
The SBA has eligibility requirements for small business contractors that include determining what a small business is, a cap on contract limits of $6.5 million for public and private contracts or subcontracts and $10 million for federal contracts. Businesses must exhibit evidence of satisfactory credit (tax liens must be released or in repayment and bankruptcies must be discharged or dismissed), references, resumes, a copy of the contract and the bond requirements, and the ability to successfully complete the contract performance obligations.
The process for SBA approval begins with contacting a surety bond agent with SuretyGroup.com and completing an application and indemnity agreement, personal financial statement(s) and resume’s/personal history for each owner, last three fiscal year-end business financial statements, schedule of work in progress, certificate of insurance, three years tax returns for any affiliations, a bank reference letter, and a copy of the contract if available. Typically, for requests $250k and under, only an application, indemnity agreement and copy of the contract are required.
There will also be additional forms to complete that the SBA Surety Bond Guarantee Program requires. The forms include a Quick Bond Guarantee Application and Agreement, Application for Surety Bond Guarantee Assistance, and Statement(s) of Personal History for each owner.
Your surety bond agent will help with explaining what the documents are for and guide you through the paperwork process from start to finish. Some of the necessary documents may take time for you to obtain, so take this into consideration when you are applying for your bond. Many contractors wait too long to start the process and are unable to get their surety bond package put together in time to meet the contract or bid deadline.
The collected documents are then sent to underwriting where everything is reviewed to see if it meets the criteria of the SBA Surety Bond Guarantee Program and to insure that all of the necessary information has been included. Your surety bond agent may contact you for additional information requests for underwriting purposes. This stage of the process can take anywhere from a day to a week or more depending on how quickly you return all of the requested information.
After underwriting has put their approval to your file, it will then be sent to the SBA Surety Bond Guarantee Program for final approval, along with a required payment fee of 0.729% for Performance and Payment Bonds. Generally, the premium rate for a contract bond approved through the SBA is 2.5% to 3% of the total contract value, which does not include the SBA fee. Upon approval, your surety agent will contact you to obtain payment and issue the bond.
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