Underwriting Criteria for the SBA Surety Bond Guarantee Program
The Small Business Administration Surety Bond Guarantee Program is a great way for many contractors to qualify for bonding that they might not otherwise be able to qualify for on their own. While the program is an excellent opportunity for many California contractors, both big and small, it’s important to understand the criteria you need to meet to properly prepare for applying to the SBA surety bond guarantee program.
To help you prequalify for the size of surety bonds you need for the jobs you want to bid on, we’ve compiled the underwriting guidelines here so you have an idea as to what it will take to apply.
Eligibility for the SBA Bond Guarantee
1
The contractor must meet the criteria of an appropriate business size to be eligible.*
2
The bond is required as a condition of bidding on or receiving the contract for the job.
3
The contractor is unable to obtain the bond needed without the SBA guarantee.
4
It is reasonably likely that the contractor can complete the job successfully as defined by the contract.
*You must be considered a small business by the federal government to participate in the program, and this is based on the average annual revenue of the company.
Here’s a quick tool to use to help determine if you’re eligible.
Also, please note that non-federal contracts up to $6.5 million and federal contracts up to $10 million qualify for an SBA guarantee. A single job size larger than those values would not qualify for the program. Therefore, the size and scope of the job matter as much as the size of your business.
Download the SBA Surety Bond Program Guide
Underwriting Criteria for SBA Surety Bonds
Just as seeking bonds outside of the SBA bond guarantee program, there is an underwriting process that is required in order to secure the surety bond needed. To help you prepare for that process, here are the conditions that must be met:
Eligibility
As mentioned earlier, the first thing you need to be is eligible. Generally speaking, trade contractors can have average annual receipts up to $19,000,000 a year and general contractors, heavy construction, and highway, street and bridge contractors can have an average annual receipts up to $45,000,000. (Please note, this changes periodically to keep up with changes in each industry.) To find out if you meet the required business size to get into the program, we encourage you to read here:
Feasibility
Does the job make sense? You will need to be able to demonstrate your ability to complete the project. For example, is it of similar size and scope of jobs that you’ve completed in the past? If the job is more than twice the size of the largest you’ve completed in the past, what makes it desirable? Being able to provide detail about the job and answer questions such as how you plan to manage the work, how familiar you are with the owner, if you’ll need to hire more people or how you’ll manage cash flow, will be very helpful.
Character
During the underwriting process, questions will be asked to help determine if you meet good character standards as outlined by the SBA. The criteria include:
- No felony or crime of moral turpitude
- Not currently under indictment
Capacity
To ensure the contractor meets the standards of capacity (or amount of work you’re equipped to handle at any given time), the underwriters will review:
- The contractor's experience and reputation
- The contractor's present and projected financial condition.
- The volume of work the contractor has completed in the past.
- The feasibility of successful completion of the project according to the conditions of the contract.
- Adequacy of labor and equipment or the plan to buy/make the equipment needed
Credit
The contractor’s credit and the financial condition of the company are both factors during the underwriting process. More specifically:
- Financial condition of the company
- Cash flow needs during the period of the contract
- Availability of a bank line of credit
- Correctly prepared financial statements
Experience
During the underwriting process for the SBA application, your experience will be reviewed to ensure your company can handle the scope of the project itself, including:
- Track record for successfully completed projects
- Scope of work for successfully completed project
- Largest successfully completed project
- Length of time in business
Indemnity
As is the same in surety relationships outside of the SBA, owners of the construction company, spouses and affiliates must sign a General Indemnity Agreement. This is a legal document that in short, gives the surety and the SBA the right to go back to the company and owners of the company for reimbursement if a bond claim is paid out and the surety suffers a loss.
Ensure Prior Approval with Experienced Surety Agents
The best way to increase your chances of getting approved by the SBA surety bond program is to work with surety bond experts that have extensive experience with the SBA, as CSBA agents do. We are committed to helping California contractors utilize all the tools available to grow their bonding capacity and meet their professional goals.
If you have any questions about our agency or the SBA program itself, we encourage you to talk with us. We are happy to help get the application process started!
Learn more about the SBA Surety Bond Program
Is the SBA Bond Program Right For You?
How the SBA Bond Program Can Increase Your Bonding Capacity
7 Tips to Increase Bonding Capacity
Introduction to the SBA Surety Bond Program
Below you’ll find answers to commonly asked questions about the SBA’s bond program and articles that can help you with the process, as well as whether or not the SBA bond program is the right program for you.