Monday, July 30, 2018

SBA's Surety Bond Guarantee Program

Under the SBA's Surety Bond Guarantee (SBG) Program, the SBA guarantees bid, payment and performance bonds for small and emerging contractors who caqnnot obtain surety bonds through regular commercial channels.

SBA's guarantee gives Sureties an incentive to provide bonding for small businesses and thereby, assists small businesses in obtaining greater access to contracting opportunities. SBA's guarantee is an agreement between a Surety and SBA that SBA will assume a certain percentage of the Surety's loss should a contractor default on the underlying contract.

Pursuant to its statutory authority "to establish such fee or fees for small business concerns and premium or premiums for sureties as it deems reasonable and necessary", and to administer the SBG Program on a prudent and economically justifiable basis, SBA assess a guarantee fee against both the small business concern and the Surety and deposits these fees into a revolving fund to cover the program's liabilities and certain program expense.

Since 2006, the fee charged to the Sureties has been 26 percent of the bond premium and the fee charged to small businesses has been $7.29 per thousand dollars of the contract amount. Prior to that, the fees were less but the SBA determined that the program's revolving fund was insufficient to cover projected, unfunded liabilities.

Since the last fee increase in 2006, the fees have been more than sufficient to support the program and as a result, a surplus has accumulated in the fund. This means that the SBA can lower its fees until the surplus is depleted. Beginning in October, the Surety fee will decrease from 26 percent to 20 percent of the bond premium and the small business fee will decrease from $7.29 to $6.00 per thousand dollars of the contract amount.

This decrease will remain in effect for at least one year. During the year, SBA will study and analyze whether the lowered fees can be sustained. If not, the fees will revert to the previous schedules.

Good news for small businesses.

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