Masonry Magazine September 1979 Page. 30
SURETY BONDING UPDATE
SBA Bond Guarantee Program Aids Small Contractors
In its April, 1979 issue, Masonry featured the article, "Contract Surety Bonding: How It Works and How to Obtain It," by C. D. Drake, vice president, Insurance Company of North America (INA). Since publication of the article, we have received additional information on this subject from the U.S. Small Business Administration, which sponsors a federally funded Surety Bond Guarantee Program. The ensuing article outlines the assistance available to small construction contractors from the SBA. More information on SBA's Surety Bond Program can be obtained in most local areas by contacting SBA regional and district offices, located in all states and most generally in state capitals.
Small contractors now can compete with big ones, thanks to a Surety Bond Guarantee Program of the U.S. Small Business Administration. The program guarantees bid, performance and payment bonds that are required for a small business to bid on and carry out a contract. The program is particularly geared-although not limited-to firms engaged in construction, repair, maintenance, services and supply. Interest in the program continues to grow, and as of September 30, 1978, SBA had guaranteed 145,907 bonds for a dollar volume of $4,636.601.093.
How It Works
SBA guarantees up to 90% of the loss on a bond on contracts of $1 million or less for small contractors and other businessmen who otherwise would not be able to obtain contracts simply because they could not qualify for required bonds. SBA's guarantee of payment on losses can be extended to any Bid, Performance or Payment bond issued by a surety company on the U.S. Treasury Department's list of approved sureties. SBA does not issue bonds. It guarantees surety claim reimbursement of those issued by surety underwriters. Particulars of the Surety Bond Guarantee program are available from any SBA Regional Office for the benefit of agents and brokers who, because of this facility, can secure bonds through regular underwriting channels for small firms.
Eligibility
A construction firm is considered small if its annual gross receipts do not exceed $3,500,000 for the previous fiscal year, or if its average gross receipts for the previous three years do not exceed this amount. Sales of affiliates must be included. Contracts of $1 million or less are eligible for SBA's bond guarantee. However, if a job has been put out to bid in components (e.g., site and foundation to one bid, building construction to another), and each does not exceed $1 million, each separate and identifiable contract can be guaranteed. There is no limit to the number of bonds that can be guaranteed to any one contractor.
Contractors' Obligations
The contractor, in conformity with prudent underwriting practice, must apply for a bond with the insurance agent or broker of his choice, furnishing him with all the financial data, work history, and other information the insurance company requires. The contractor also must provide the agent or broker with three completed copies of Surety Bond Guarantee Application (SBA Form 994), which is obtainable from SBA, plus other material also available from SBA. SBA makes its own underwriting review and, if favorable, completes the guarantee agreement and returns it to the surety. Each applicant pays a $10.00 filing fee per bond. When the bond is issued, the businessman must pay SBA two-tenths of one percent ($2.00 per thousand dollars) of the contract's face value (contract, not bond amount). When the bond is issued, the businessman may pay the surety company's bonding fee. The The surety, in turn, will pay SBA a guarantee fee. SBA, in addition, will provide counseling and other supplementary assistance to the small businessman in securing his bonds. Agents and brokers through this program have the opportunity of assisting small contractors to get started, particularly those who could not because their limited resources do not meet normal surety bond requirements.