The Program

The U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $2 million, covering bid, performance, and payment bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, and thereby strengthens a contractor's ability to obtain bonding and greater access to opportunities. A surety guarantee - an agreement between a surety and the SBA - provides that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract .

Definition of a Surety Bond

A surety bond is a three-party instrument between a surety, the contractor, and the 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 surety assumes the contractor's responsibilities and ensures that the project is completed. Below are the four types of contract bonds that may be covered by an SBA guarantee:

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 to persons who furnish labor, materials, equipment, and supplies for use in the performance of the project.
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.

Eligibility

A contractor applying for an SBA bond guarantee must qualify as a small business in addition to meeting the surety's bonding qualifications. Businesses in the construction and service industries, including their affiliates, can meet SBA's size eligibility standards if their average annual receipts for the last three fiscal years do not exceed $6 million. Local SBA offices can answer questions dealing with size standard eligibility.

Types of Eligible Bonds

Bid bonds and final bonds are eligible for an SBA guarantee if they are executed in connection with an eligible contract and are of a type listed in the "Contract Bonds" section of the current Manual of Rules, Procedures, and Classifications of the Surety Association of America (SAA). Ancillary bonds may also by eligible for SBA's guarantee. (For further information and clarification, please contact our nearest field office.)

Size of Eligible Contracts

The SBA can guarantee bonds for contracts up to $2 million .

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