In 1935, Congress passed the Federal Miller Act, requiring a payment and performance bond for all federal contracts over $100,000. As a result, many small, disadvantaged or emerging contractors found it difficult to compete with larger construction companies and were not able to obtain the required surety support.
To prevent this barrier, the Small Business Administration (SBA) began the Surety Bond Guarantee (SBG) Program in 1968. The SBG program was designed to assist contractors who did not qualify for surety bonds in the standard market. Construction businesses that plan to bid on a federal project over $150,000 will need to first apply for a bid bond and if awarded the contract through the bidding process, obtain a performance bond.
The SBA offers several bond programs. Contractors must meet specific size standards related to industry standards. The Prior Approval Program, The Quick Bond Application for Prior Approval Program and the Preferred Program. In addition to size standards, the SBA charges a fee of $7.29 per $1,000 of the total contract amount for payment and performance bonds. This fee is in addition to the premium charged by the Surety.
The SBA will guarantee a portion of the bond (70-90%) and will reimburse the surety company if the contractor defaults. This reduces the risk for sureties and makes it possible for small-to-midsized contractors to obtain bonding.
In order to be considered for the SBA SBG program, contractors must submit their underwriting information to an approved agent. The agent will then submit the account to the SBA for admission into the program. SuretyGroup.com has participated in this program for over 30 years.
The Prior Approval program requires the surety agent to obtain the SBA's approval before bond can be issued.
A 90% guarantee is provided for contracts under $100,000 and for socially and economically disadvantaged contractors: HUB Zone contractors, Veteran contractors, and service disabled contractors.
The SBA provides an 80% guarantee on bonds approved through this plan for all other individual contracts up to $6.5 million or $10 million if a Federal Contracting Officer certifies the small business will need a SBA guarantee.
The Quick Bond Program is for contracts up to $250,000 and is a streamlined process which reduces the paperwork for the surety and the contractor.
The Preferred Program allows the surety to approve the bonds without obtaining prior approval from the SBA. The surety supporting the bond must be listed on the US Treasury (Circular 570) or T-List of acceptable sureties and accepted by the SBA to participate. The surety must follow certain rules and regulations set forth by the SBA in order to be qualified in the Plan B program. Plan B provides a 70% guarantee for all bonds.
SuretyGroup.com has been working with the SBA for over 30 years and understands the ins and outs of the program. With SBA support, contractors with the skills and expertise to complete the job but not necessarily the working capital or net worth for traditional bond programs, can now qualify for bid, payment and performance bonds. SuretyGroup.com works with sureties in both Plan A (prior approval) and Plan B (preferred surety) programs.
Getting started is easy. Simply complete the Contractor's Bond Kit and submit it to SuretyGroup.com. Your bond request must be submitted to the SBA through SuretyGroup.com. We will assist you in completing all SBA forms and then handle the rest.
The premium that you pay for an SBA Surety Guarantee Bond will vary and is dependent on the contract amount, work on hand, experience and other factors. Additionally, the SBA charges the small business a 0.729% fee of the contract price for a payment bond or a performance bond. The SBA does not charge for a bid bond.
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