Ultimate Guide to Small Business SBA Loans
Surety Bond Guaranty Program
by Daniel Rung and Matthew Rung
View Table of Contents
View Table of Contents
- Introduction
- Is an SBA loan right for my business situation?
- Understanding SBA Loan Programs
- Preparing for an SBA Loan Application
- SBA Loan Requirements and Eligibility
- SBA Loan Fees and Costs
- The SBA Loan Application Process
- SBA Loan Denials and Appeals
- SBA Loan Servicing and Monitoring
- SBA Loan Compliance and Audits
- SBA Loan Refinancing and Consolidation
- SBA Loan Forgiveness and Debt Relief
- SBA Loan Guaranty Purchase Process
- SBA Loan Portfolio Management
- SBA Loan Programs for Specific Groups
- International Trade and SBA Loans
- Alternative Lenders and SBA Loan Lenders
- SBA Loan Scams and Fraud
- SBA Secondary Market Programs
- SBA Loan Trends and Future Outlook
- Success Stories and Case Studies
- Resources and Tools
- Conclusion
Purpose of the Program
The SBA Surety Bond Guaranty Program is designed to assist small businesses in obtaining surety bonds, which are often required to compete for and secure contracts. This program aims to help small contractors who might otherwise be unable to obtain bonding in the traditional commercial marketplace. By providing a government guarantee to surety companies, the SBA increases the likelihood that small businesses can secure the bonds they need to bid on and perform contracts, particularly in the construction, supply, and service sectors.
Eligibility Requirements
To qualify for the SBA Surety Bond Guaranty Program, businesses must meet the following criteria:
- Be a small business according to SBA size standards
- Be able to perform the contract (i.e., have the necessary experience, equipment, and personnel)
- Meet the surety company’s bonding qualifications
- Be engaged in a contract that requires a surety bond
- For federal contracts, the contract must not exceed $10 million
- For non-federal contracts, the contract must not exceed $6.5 million
- Have good character and reputation
- Generally unable to obtain bonding on reasonable terms through regular commercial channels
Program Details and Terms
The SBA Surety Bond Guaranty Program offers the following features:
- Types of bonds: Bid bonds, performance bonds, payment bonds, and ancillary bonds
- SBA guarantee: Up to 90% for contracts up to $100,000 and for small businesses owned by socially and economically disadvantaged individuals, veterans, and service-disabled veterans; up to 80% for all other contracts
- Maximum contract amount: $10 million for federal contracts; $6.5 million for non-federal contracts
- Fees:
- Principal (small business): 0.6% of the contract price
- Surety: 26% of the bond premium
- Quick turnaround: SBA can approve applications within days under the Preferred Surety Bond program
Permitted Uses
The Surety Bond Guaranty Program can be used for various types of contracts and situations, including:
- Construction contracts (both general and subcontracts)
- Service contracts
- Supply contracts
- Leases
- Warranty obligations
- Maintenance contracts
- Contracts for manufacturers
It’s important to note that while this is not a loan program in the traditional sense, it serves a similar purpose by helping small businesses access the financial guarantees they need to compete for contracts. The program does not provide direct funds to businesses but instead guarantees a portion of the bond to the surety company.
The SBA Surety Bond Guaranty Program plays a crucial role in leveling the playing field for small businesses in industries where bonding is required. By providing this guarantee, the SBA enables small contractors to compete for larger contracts that might otherwise be out of reach due to bonding limitations. This not only helps individual businesses grow but also promotes competition and diversity in government and private sector contracting.
For small businesses in construction, supply, and service industries, this program can be a game-changer. It allows them to take on larger projects, build their performance history, and eventually transition to obtaining bonds through traditional commercial channels as they grow and establish themselves in their respective markets.