The SBA’s Surety Bond Guarantee Program aims to help small and minority contractors who cannot obtain surety bonds through regular commercial avenues. This program can guarantee bid, performance and payment bonds for individual contracts of $2M or less.
A surety bond is a three-party instrument between a surety, contractor and project owner. The contractor must abide by all terms and conditions of a contract; however, the surety takes on the responsibilities and obligations of the contractor if he/she is unable to fulfill them.
The SBA’s role in the SBG Program is not to issue surety bonds, but to manage and provide surety bond guarantees to small and emerging businesses. The SBA guarantees the surety company a predetermined percentage of any losses it may occur if the contractor breaches the contract. The SBA is the one to issue a guarantee with the surety company and to set the guarantee fee. Also, the SBA charges the contractor a small percent of the contract price (less than 1%).
These are the different types of contract bonds the SBA guarantees:
1. Bid - Bond which guarantees that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds.
2. Payment - Bond which guarantees payment from the contractor of money to persons who furnish labor, materials equipment and/or supplies for use in the performance of the contract.
3. Performance - Bond which guarantees that the contractor will perform the contract in accordance with its terms.
4. Ancillary - Bonds which are incidental and essential to the performance of the contract.