Thursday, August 15, 2019

SBA Surety Bond Guarantees - Lower Fees Trial Extended Another Year

The SBA (Small Business Administration) just announced a one-year extension of the temporary decrease in the guarantee fees that it charges all Surety companies and Principals on each guaranteed bond issued in SBA's Surety Bond Guarantee (SBG) Program.

SBA's SBG program is a pretty good deal. Under this program, SBA guarantees a certain percentage of bid, payment, and performance bonds for small and emerging contractors who cannot obtain bonds through regular commercial channels. The SBA guarantee incentives sureties to provide bonding for small businesses and thereby assists small businesses in obtaining greater access to contracting opportunities. SBA gets to establish such fees for small business concerns and premiums for sureties as it deems reasonable and necessary. The guarantee fees are assessed against both the small business concern and the surety. These fees, in turn, are deposited into a revolving fund to cover the program's liabilities and certain program expenses.

Back in October 2018, the Surety fees were reduced from 26 to 20 percent of the bond premium, and the Principle fee decreased from $7.29 to $6 per thousand dollars of the contract amount. These lower fees were set to expire next month, September 2019 but SBA now believes it needs more data to fully evaluate the effect of the lower fees on the SBG program. What are the risks to the program? Do these lower fees generate enough money in the revolving fund to keep it afloat?

To acquire more data and provide more time to study it, the SBA has extended the trial period for the lower fee amounts another year. Its a good deal for small businesses.

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