SBA Bonds & Other Alternatives

Please complete a Standard Application so we can determine which programs are best to meet your needs.

SBA Bonds

The SBA Bond Guarantee Program (SBG) is one alternative for writing contract bonds on Contractors that otherwise can not find surety support in the standard marketplace.

The bonds are issued by surety companies that participate in the SBG Program, and as an incentive, the SBA guarantees loses that the surety incurs ranging from 70% to 90% of the final total loss.

Contractors qualify for the program if their annual revenues, averaged over the last three years are within parameters that are established for their type of work (number of employees of 500 or less for manufacturing operations, revenues of either $14,000,000 for specialty trades or $33,500,000 for General Contractors, etc. These numbers includes all subsidiaries and affiliated entities).

This option is similar to the SBA Loan Program where the SBA guarantees a percentage of any loan default to the banks participating in the loan program.

Please don’t be frightened of the SBA program – paperwork is minimal! The application process consists of simply a standard bond submission and an SBA Form 912 for each owner, officer, director and an SBA Form 994 from the link below:

http://www.sba.gov/content/bond-guarantee-application-forms

Bond Alternatives

Other alternatives to Standard and SBG programs are collateral and/or Funds Administration approaches.

Collateral is sometimes the only option, and simply consists of the contractor/principal depositing acceptable collateral (Cash, Irrevocable Letter of Credit (ILOC), CD, Brokerage Account, Deed of Trust on Property, etc.) to support the bond. The amount is specific to each case but normally will range from 10-100% of the bond.

Funds Administration is a risk management tool that allows the surety, through the surety’s in-house facility or a third party administrator, to process the project funds. This feature simply assures that all of the contract proceeds are used to pay costs directly associated with the project and not borrowed on other projects or overhead requirements. It’s handled in accordance with the contractor’s project budget and consent prior to paying the various suppliers, subcontractors, laborer’s etc.