Many contractors have heard about the SBA program but wonder if it’s right for them and are unsure how to figure out if it’s a good fit for their bonding needs. The program can be a great help to both newer and more seasoned contractors, but not all would benefit from applying to it. In this article, we’ll discuss what the SBA program is and factors for you to consider that will help you decide if pursuing the program is in your best interest or not.
What is the SBA Program?
SBA stands for Small Business Administration which created the Surety Bond Guarantee Program in 1971. The goal of the program is to give small business contractors the means to bid on government contracts at the federal, state, and local levels by making it easier for them to qualify for the required bonds.
The SBA program helps achieve this by aligning with surety companies and giving them a guarantee against losses, allowing them to be more flexible with underwriting contractors and going beyond the normal bonding limits of traditional surety bond programs.
The reason for the SBA‘s existence gives more seasoned contractors the impression that the SBA program isn’t for them, as it focuses on small businesses. It’s a fair assessment, but keep in mind that the SBA can provide fairly large bonds, up to $6.5 million for a single job. For example, general building and civil engineering contractors can have an average revenue of up to $39.5 million while trade contractors can have revenues up to $16.5 million.
To learn more details regarding how the SBA bond program can increase your bonding capacity, we strongly recommend reading here: How the SBA Bond Program Can Increase Your Bonding Capacity – CSBA
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Small Business Administration Program
Factors to Consider
Before you run to complete an SBA application, there are a few things to consider before relying on the program for a bond. First, let’s go over the downside to applying for the SBA program: the cost. The SBA charges 0.6% for performance and payment bonds on top of the surety‘s standard premium rate, making the program more expensive than standard surety bond programs.
Another aspect to consider is the size of your projects. The SBA will bond jobs up to $6.5 million, and in limited circumstances, they can go up to $10 million for federal contracts with the contracting officer’s approval. The 0.6% charge by the SBA can be a small price to pay for contractors that need a higher bonding capacity that they can’t yet qualify for with traditional surety bond programs, and the SBA will usually give twice as much surety capacity as the traditional one. This extra cost can be well worth it as it opens a large door for growing and small business contractors.
If the size of your project and overall operation doesn’t justify the extra cost, then it’s better to go the traditional bonding route and grow your bonding capacity through other means. To read more about growing your bonding capacity without the help of the SBA program, we strongly encourage you to read here: 3 Things Contractors Can Do to Increase Bond Capacity Immediately – CSBA
Getting Into the SBA Surety Bond Program with CSBA
How much a bid bond costs depends on several variables, like the factors listed above. Typically, there is no charge for the bid bond, but surety companies will charge a premium for a performance bond or payment bond when and if you’re awarded a contract. Therefore, it’s important to include the price in your bid, even though the bid bond didn’t cost anything. To learn more about how to lower premium costs, we recommend you read here: How to Best Position Yourself for the Lowest Surety Bond Cost – CSBA
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We want to know more about how we can help your construction company get the right contractor bond for your next project.