How SBA Bonding Program works
Posted: Saturday, July 24, 2010
by Yury Iofe
http://www.ubssolution.com
Bonding Program (Surety Bonds)
SBA's Surety Bond Guarantee (SBG) Program helps contractors to obtain surety bonds.
A surety bond is a three-party instrument between a surety (someone who agrees to be responsible for the debt or obligation of another), a contractor and a project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed.
SBA makes an agreement with a surety guaranteeing that it will assume a percentage of loss in the event the contractor should breach the terms of the contract. SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, thereby strengthening a contractor's ability to obtain bonding and greater access to contracting opportunities for small businesses.
SBA can guarantee bonds for contracts up to $5 million, covering bid, performance and payment bonds, and in some cases up to $10 million for certain contracts.
Four types of bonds:
Payment . Guarantees payment from the contractor to persons who furnish labor, materials equipment and/or supplies for use in the performance of the contract.
Bid . Guarantees that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds.
Performance . Guarantees that the contractor will perform the contract in accordance with its terms.
Ancillary . Incidental and essential to the performance of the contract.
Prior Approval Program
An agent reviews the contractor's application package and recommends it to the surety company for approval. If the company agrees to issue a bond with the SBA guarantee, the package is forwarded to the appropriate SBG Area Office. If the applicant is approved, SBA may issue a guarantee to the surety company. The surety then issues the bond to the contractor. SBA's guarantee agreement is with the surety company, not with the small business contractor.
Any surety company certified by the U.S. Treasury to issue bonds may apply for participation in the Prior Approval Program, but its bonds are subject to SBA's prior review and approval. Contractors bonded under this program are generally smaller and less experienced than contractors bonded under the Preferred Surety Bond (PSB) program.
Preferred Surety Bond (PSB)
The PSB program has been created to encourage larger surety companies to help small businesses. SBA gives selected sureties the authority to issue, monitor and service bonds without prior SBA approval. The SBA guarantee is 70% under this program. Each participating company has a guarantee limit with the SBA. PSB surety companies serve more experienced contractors that demonstrate the potential for growth and consistently have more active work programs. Sureties participating in this program cannot participate in the Prior Approval program.
Yury Iofe, MBA
Universal Business Structured Solution
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