OVERVIEW OF SBA

SURETY BOND GUARANTEE PROGRAM

What is a Surety Bond?

• Agreement between: Business/Contractor

Surety Company Obligee (Project Owner)

• The types of contract surety bonds are:Bid BondPerformance BondPayment Bond

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What is a Surety Bond?

• Compete for projects• Performance and payment bonds

will be providedBid Bond:

• Guarantees successfully completion of contract according to the terms and conditions of the contract.

Performance Bond:

• Guarantees that subcontractors and labor and material suppliers will be paid for their work.

Payment Bond:

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Why Surety Bonds are Required

Federal Government: Federal construction contracts greater than

$150,000 require surety bonds under the Miller Act.

State, County & Local Government:

“Little Miller Acts”.

Private Sector

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Pre-Qualification by Agent

• Pre-qualifying means knowing what your allowable bond credit levels will be in advance of bidding to assure bonds will be available to you.

• Need to know: Single Contract Limit (max $6.5million) Total Aggregate Work Program Number of Bonded Contracts Allowed at One Time Allowed Type of Work (General Construction,

Electrical, etc.)

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Pre-Qualification by Agent - continued

• Becoming bondable is similar to the process of obtaining bank credit

• Ask your agent to help you get pre-qualified

• Allow plenty of lead time

• Setting up bonding may take several weeks

• Ask your agent about establishing an SBA bonding line

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Surety’s Underwriting Focus

• Technical & Managerial Ability • Track Record – past experience demonstrates ability to

perform future projects• Financial Statements (quality statements based on job size)• Financial Resources (Working Capital, Net Worth, etc.)• Profitability• Credit Resources (Banks & Suppliers)• Credit History (Company and Owners)

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Bank Support

A good banking relationship is important to obtaining bonding:

Agent will request information on:

• Accounts• Cash Balances• Bank Line of Credit (BLOC)

BLOC - SBA counts the available balance on a BLOC as available working capital

Get to know a banker whether you need credit now or not

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Maximize Your Surety Credit

• Find an agent & be thorough in the information you provide• Get pre-qualified• Retain profits and build up the following balance sheet items

and ratio:Working CapitalNet Worth Debt/Net worth

• Prepare quality financial statements (CPA prepared is best)• Obtain credit with bank & suppliers• Document past contract performance

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Benefits of Obtaining Surety Credit

Establish a history of successfully completing bonded jobs

Bonded businesses are favorably viewed by agents and obligees

Access new revenue streams through bonded jobs - many GCs and other Obligees work only with bonded businesses

Opportunity to grow as a prime contractor

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SBA Surety Bond Guarantee Program

SBA can assist many small businesses including:

• Start-ups and firms in business less than 3 years• Firms with limited financial resources (cash, working

capital, net worth)• Firms with recent losses• Firms with limited track record in prior completed job size• Firms with no prior public works/bonded work experience• Firms wishing to increase current bond limits• Firms with some credit issues

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SBA Surety Bond Guarantees

SBA provides the Surety a guarantee of 80% or 90% reducing the Surety’s liability for each bond.

Prior Approval Program • 90% Guarantee:

All veteran owned & service disabled firmsMinority owned businesses8(a) and certified HubZone businessesAll projects not exceeding $100,000

• 80% Guarantee:All other small businesses

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Contract and Bond Eligibility

• Maximum Contract Size: $6.5 million

• The small business and its owners must:Certify they need a bond and are unable to obtain it

elsewhere with reasonable termsNot be barred from doing business with the Federal

GovernmentNot be on probation or parole or in bankruptcy

• Bid, performance and payment bonds must be required by the contract

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Bond Application Package

SBA Forms:

• SBA Form 994 - Application for Surety Bond Guarantee Assistance

• SBA Form 912 - Statement of Personal History

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Application Process

Business contacts

SBA approved

bond Agent

Agent evaluates business’s

credit, character & capacity

Agent applies for

a bond guarantee

to SBA

SBA reviews & approves qualified

applications

Agent provides bond to

the business

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Note: A Surety may bond a business with or without an SBA guarantee or decline to bond the business if they do not qualify.

Common Reasons SBA is Unable to Provide aBond Guarantee

• Inadequate working capital

• Incomplete submission

• Contractor not a small business under SBA regulations

• Project size exceeds OSG limit

• Ineligible bond type

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Locating an SBA Approved Bond Agent

• Use SBA’s list of Bonding Agencies by State available at:

http://www.sba.gov/content/bond-agencies-state

• Contact an SBG Area Office for a referral

• Ask your current Agent if they participate in SBA’s Surety Bond Guarantee Program

• Agents should contact suretybonds@sba.gov to apply for participation

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YES YOU CAN!

START PREPARING TODAY www.sba.gov 18

Georgia District Office

For more information on SBA’s Surety Bond Guarantee

Program

Please contact:

Melanie D. Bryant

233 Peachtree Street, NW

Atlanta, GA 30303

Telephone:

404-331-0100 x603

Email: Melanie.Bryant@sba.govOr visit our office web site at www.sba.gov/osg or www.sba.gov/ga

FY 2014 www.sba.gov 19