How the SBA Bond Program Can Increase Your Bonding Capacity

The Small Business Administration (SBA) formed the Surety Bond Guarantee Program in 1971 in an effort to increase the small business participation in federal, state, and local government contracting. To accomplish this, the SBA provides participating surety companies a guarantee for the bid, performance and payment bonds they write to contractors enrolled in the program. This allows the surety companies to be more liberal in their underwriting than they would typically be. 

While many contractors may not have heard of the SBA Bond Program, it plays a large role in surety bonds for emerging contractors. In Fiscal Year 2020 alone, the SBA guaranteed 10,577 bid, performance, and payment bonds with a total contract value of nearly $7.2 billion.

How the SBA Provides Increased Bonding Capacity

From a financial standpoint, the main driver of determining the amount of bonding a contractor qualifies for is their working capital.

Working Capital = Current Assets (Less over 90-day receivables) – Current Liabilities

Standard surety programs will multiply working capital by 10 times to calculate the total bonding capacity a contractor qualifies for. For example:

Working Capital $300,000 X 10 = $3,000,000 total bonding capacity

The SBA program differs in two significant ways. First, the SBA will use up to a 20 times multiple instead of the 10 that standard sureties use. The SBA also adds a contractor’s unused bank line of credit to working capital which standard sureties do not do. Using the same example above and adding the contractor’s $100,000 unused bank line of credit would look like this:

(Working Capital $300,000 + Unused Bank Line $100,000) x 20 = $8,000,000 total bonding capacity

As you can see when comparing these examples, a contractor using the SBA bond program may qualify for up to $5 million in additional bonding capacity.

Not Just for Small Contractors

The SBA program guarantees individual contracts up to $6.5 million. 

The average revenue of the contractor over the past 3 years, including affiliates and joint ventures, has to be below the size standards set by the SBA, which can be found on the SBA’s website:

Many general building and civil engineering contractors can have average revenues up to $45 million. Most trade contractors are capped at average revenues of $19 million.

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How Does it Work?

In order to apply for the SBA bond program, contractors have to reach out to a surety agent that has access to participating sureties. At CSBA, we have decades of experience working with the SBA program, and we represent the leading SBA surety providers. 

The application process is very similar to applying for a regular bond program. The SBA simply requires an additional application to be completed

In order to qualify, the contractor and any affiliates must meet the SBA’s size standards outlined above. The contractor must also self-perform at least 15% of the work and must certify that they are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from transactions with any federal department or agency.

What’s the Catch?

The main downside to the SBA bond program is the SBA has their own fee they charge of 0.6% for performance and payment bonds. This is paid directly to the SBA and is in addition to the surety company’s premium. 

The additional cost is often well worth the access to the increased bonding capacity while a contractor is building their organization. It can lead to larger contract opportunities and gross profit that they would not otherwise have had the ability to pursue, which often far outweighs the additional cost of the SBA’s fee. 

It’s also important to note that sureties still have to complete their standard underwriting of evaluating a contractor’s capability of performing projects. If a contractor cannot demonstrate their ability, a surety may not be willing to go up to the entire limit provided by the SBA.


If you’re interested in exploring the SBA program, it’s important that you work with an agent well-versed in the program like CSBA. There are many nuances, and inexperienced agents can inadvertently cause contractors to unnecessarily loose out on valuable bonding capacity by not knowing the details of how the program works. We unfortunately see it all the time.

Please feel free to contact us with any questions or to learn more information about how we can help you grow your business.

Shaunna Ostrom.
About The Author

Shaunna Ostrom

Senior Underwriter

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