SBA Surety Bond Program
Small contracting companies usually face the problem that clients are afraid that the project will not be completed satisfactorily. In order to remove such fears, the contractor can offer a surety bond, which guarantees completion of work. Several government and private programs require contractors to offer surety bonds for a contract. This is the reason why the SBA Surety Bond Program was born.
SBA guarantees a part of the surety bond to induce a participating surety for the issuance of the bond. This helps small businesses get more contracts.
There are four types of SBA surety bonds:
- Performance: it makes sure that even a small business will fulfill the contract.
- Bid: this ensures a performance bond for the bidder of the contract.
- Payment: this allows clients to make complete payments to suppliers and subcontractors
- Ancillary: this makes sure that the processes other than payment, such as maintenance, etc. are properly taken care of.
The requirement for a surety bond is different from other SBA loan requirements. The customer has to apply to SBA-authorized company for a surety bond. Businesses must meet the criteria set by the SBA and the agent. In case the contractor defaults on the contract, the SBA will make sure to recover a fixed percentage of money and losses.