Guest Column: The SBA's surety bond program

The United States Small Business Administration, an independent federal agency, is well known for its guaranteed commercial loan programs, which are available through area micro-loan intermediaries, community and national banks, commercial lenders and community development corporations located across our region. Some business owners are aware that the SBA is the principal sponsor of the SCORE Association and the University of Missouri Extension’s Small Business and Technology Development centers that provide free management assistance to thousands of Missouri-based entrepreneurs and small-business owners every year from locations throughout the state. But few Missouri small businesses know that the SBA has a surety guaranty program that operates very much like its guaranteed loan program, available to them from local insurance companies and bonding agents in our community, that helps small businesses grow and create jobs.
The SBA Surety Bond Program is available to most Missouri-based businesses that are small by SBA’s size standards and are independently owned, managed and controlled. You can find out whether your business is considered small by SBA by going to www.sba.gov/size or by calling (314) 539-6600, ext. 262. The American Recovery and Reinvestment Act of 2009 increased the maximum bond SBA can guaranty from $2 million to $5 million. Although there are no limits to the number of surety bonds SBA can guaranty for a small business, the program must be used for all of the small business’ bonds. The program can be used to guaranty bid bonds, payment bonds, performance bonds and ancillary bonds but cannot be used for advanced payment, completion or other bonds.
The SBA Surety Bond Guarantee program is two different surety bond programs. The first is the Prior Approval Guaranty program (called Plan A) in which an insurance agent agrees to issue a surety bond with the SBA’s guarantee; this requires that a surety application be assembled then forwarded to SBA for consideration. SBA’s guaranty is 80 percent — 90 percent if the contract is for $100,000 or fewer, if the contractor is socially and economically disadvantaged by SBA’s standards or the contractor’s principal office is located in an area deemed a Historically Under-utilized Business Zone community. You can find out if your business is located in a HUBZone community by going to www.sba.gov/hubzone, then clicking on the “Are you in a HUBZone” icon.
The Preferred Surety Bond Program (called Plan B) authorizes selected sureties to issue, monitor and service bonds without prior SBA approval in exchange for an SBA guaranty of 70 percent, with each participating surety issuer being given a guarantee limit with SBA.
The SBA does not issue surety bonds directly to contractors. A contractor must first choose a surety company or bonding agent who represents a participating surety company and establish a business relationship with that firm. The contractor then completes the surety application, submits the required SBA forms for the Plan A program and provides the agent with the necessary credit, capacity and character information. Much like the guaranteed loan programs, the underwriter does not use SBA’s guaranty if the bond can be issued without it and uses SBA’s Surety Bond Program only if SBA’s participation is necessary to issue the bond.
The required forms can be found online at www.sba.gov/osg; click on the “Surety Bonds Forms” icon along the right hand of the page. The forms an insurance agent/broker needs to complete to work with this program are located on the same SBA Web site. Insurance companies and bonding agents can submit the packages to SBA by clicking on the “Contacts/Representatives” icon on the same Web page.
A list of participating bonding agents, insurance and surety firms that use Plan A or Plan B can be found on the site
In exchange for guarantying between 70 and 90 percent of the bond, SBA charges a fee of $7.29 per $1,000 of contract price, and contractors can expect to have an answer from SBA within three to five business days of submission.
Bob Newman, a 20-year veteran of the SBA, serves Missouri’s small businesses from offices in Columbia, Hannibal and St. Louis. Reach Bob at (636) 358-5941 or by e-mailing him at [email protected].