The SBA surety bond guarantee program helps contractors secure bonds to bid on jobs they wouldn’t otherwise be able to. With help from an experienced surety agent, you can leverage this lenient underwriting to maximize your business growth.
While the SBA bond guarantee program can benefit many contractors, it has many rules and guidelines that can be difficult to navigate without a professional.
Increased Access to Capital
The SBA Surety Bond Guarantee Program allows contractors to bid on contracts that require bonding but don’t have the financial strength or credit history to secure a bond on their own. This opens up new opportunities to grow their business and increase their revenue potential.
Contractors know bonding is required for many construction, supply, and service contracts. However, becoming bondable is a complex process that requires reviewing the company’s technical and managerial ability, financial statements, credit resources, and other factors. Often, these requirements make it difficult for small businesses to qualify. In addition, the SBA program allows for a quicker and less cumbersome process to get bonded. The program is also an excellent tool for contractors with blemishes on their credit, such as past bankruptcy or lien issues, making it easier to qualify than in standard markets. The process is still time-consuming, though. The first step is an approval from the bonding company.
Reduced Risk to Sureties
SBA’s guarantee reduces the risk to the surety company, allowing them to issue bonds for more small businesses. In addition, the program reduces the amount of cash a business needs to tie up to obtain a bond. This can improve a company’s cash flow and help it grow its revenue.
A business may need a performance and payment bond to secure a contract. This can take up a large portion of the company’s working capital. However, if the company can’t get a bond, it won’t be able to take on the contract.
SBA’s Surety Bond Guarantee Program allows a company to get a bond to continue to grow its revenue potential. The program does cost a little more than traditional bonds, but it’s worth the small extra expense when a company can’t afford to miss out on an opportunity. This can be especially true for emerging contractors, contractors involved in a buy-out, and those with credit flaws.
Increased Access to Contracts
The SBA’s program allows small and emerging contractors to get bonded for typically too-large contracts to obtain through standard commercial markets. With a federal contracting officer’s certification, SBA can guarantee contract bonds up to $6.5 million and up to $10 million for national projects.
In addition, SBA’s streamlined Quick Bond Application process, similar to the Prior Approval Program, reduces the amount of paperwork and other underwriting requirements. It also increases bond capacity for contractors with blemishes on their credit, such as past bankruptcy or lien issues, that would prevent them from obtaining a standard bond.
Most contract surety companies base their bond capacity on a multiple of the contractor’s analyzed working capital. In contrast, the SBA considers an unused bank line and other factors to determine a maximum bond limit for eligible small businesses. This makes it possible for contractors to pursue government projects they might not otherwise be able to bid on without the required performance and payment bonds.
Increased Revenue
The SBA Bond Guarantee Program is a valuable resource for companies that need to secure work contracts. This program allows contractors who might otherwise have trouble obtaining bonds due to financial blemishes (such as a bankruptcy or lien) to qualify for the bond.
In addition to providing access to contracts, the program can increase revenue for businesses. For example, a manufacturing company used the SBA program to obtain the required bond. It secured a government contract, which increased its revenue and allowed it to hire more employees.
Although the SBA charges a fee to guarantee a bond, it is often worth the additional cost for a business that can’t get bonded independently. For many small construction businesses, bonding issues can prevent them from securing projects, allowing them to grow their business and create jobs. This program removes that barrier and opens new opportunities for entrepreneurs and seasoned contractors.
