Chances Bonding Services

SBA Bonds

When small and growing contractors want to enhance their trust and jiggle multiple projects in the federal and private sectors, they can do so by applying for SBA Bond Program.

The following information will guide you more about its nature, requirements,

application process, and frequently asked questions.

SBA Bonds: What Are They?

Small Business Administration or SBA bonds are issued by the government or a nominated company. They are construction bonds in the public and private domain exclusively obtained through the SBA bond program. These bonds guarantee that you will act according to the contract and honor the bid you submit. SBA bonds are mandatory for small and medium firms working on federal projects which are valued at $150,000 or more.

Working Process of SBA Surety Bond

The SBA’s Surety Bond Guarantee (SBG) program covers a range of contract bonds, including bid, performance, and payment bonds for contractors meeting federal financial standards requirements for minor company status. Consequently, license and permit surety bonds and other such commercial bonds are not covered under SBA.

To qualify for the SBA’s Surety Bond Guarantee program, one must meet specific requirements such as;

  • Classification of Small Businesses: As per the SBA guidelines, a business with an annual turnover of $7.5 million is considered small and eligible for SBA bond. However, each industry has different categorizations for small businesses, which is explained in detail by the SBA on their website.
  • Limited Contract Size: For non-federal contracts, your contract must be at least $6.5 million; for federal contracts, it must be $10 million. With a maximum bond of $400K, no aggregate limits, and financial conditions, the SBA offers the QuickApp program.
  • Reputation, Competence, and Personality: Only companies that meet the requirements and are deemed capable of completing the work are qualified by the SBA.

 

Who Can Obtain an SBA Surety Bond?

If a firm meets the SBA criteria, and are having difficulties in approval of a contract surety bond, they should take advantage of this service.

In particular, the following are some examples of companies benefiting from this program:

  • Startups and new businesses less than three years old
  • Companies with a short employment history
  • Businesses with insufficient funds
  • Firms that have suffered losses recently
  • Companies with bad credit history
  • Enterprises that want to increase their bond limits

The SBA was founded to help small and growing companies to obtain federal or private contracts. They offer peace of mind for both parties regarding contract obligations and keep them financially secure in case of any unforeseen circumstance.

Cost of an SBA Surety Bond

Considering an SBA surety bond, the SBA contractor fee is a fixed amount of 0.6% of the required bond amount. The SBA receives payment of fees, not guarantees. Recently, this price was reduced to 0.729%. The 0.6% fee was introduced on October 1, 2018, and has since been extended. Its original expiry date was September 30, 2019.

The surety who provided the contractual bond still charges the average premium. Remember that the SBA offers guarantees to the guarantor to encourage more small businesses to bond, and the guarantor is the one who issues the bond. The surety bond premium varies from application to application Depending on the contractual task, the applicant’s credit, financial situation, and work history.

SBA bonds are an effective tool for small firms bidding on government contracts. Understanding the program and its benefits can capture new prospects, develop trust and grow your company.