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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 [email protected] 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: [email protected] visit our office web site at www.sba.gov/osg or www.sba.gov/ga
FY 2014 www.sba.gov 19