A surety bond provides a form of guarantee that you will complete the work that you have committed to perform. Often referred to as a performance bond, the surety bond guarantees that you have the financial resources to complete the job from start to finish. Through its Surety Bond Program the SBA can guarantee bid, performance, and payment bonds for contracts up to $2 million for small businesses that cannot obtain bonds through regular commercial channels.
A surety bond is a document signed by the contractor and the surety company that assures the project owner the contract will be completed.
Contractors obtain surety bonds from surety companies or agents representing surety companies. Most public construction contracts and many private contracts require one, so if you’re a construction or service contractor bidding on a project, you’ll probably need a surety bond.
SBA guarantees bid, performance and payment bonds issued by surety companies. This Federal guarantee encourages surety companies to bond small businesses who are having difficulty obtaining bonding on their own.
Explore these links to learn more about surety bonds, why you may need a surety bond and how SBA can help you obtain one.
There are four types of surety bonds:
- Bid Bond: Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.
- Payment Bond: Ensures suppliers and subcontractors are paid for work performed under the contract.
- Performance Bond: Ensures the contract will be completed in accordance with the terms and conditions of the contract.
- Ancillary Bond: Ensures requirements integral to the contract, but not directly performance related, are performed.
When do I need a surety bond?
Any Federal construction contract valued at $150,000 or more requires a surety bond when bidding or as a condition of contract award. Most state and municipal governments as well as private entities have similar requirements. Many service contracts, and occasionally supply contracts, also require surety bonds.
What is SBA’s role?
The mission of the Office of Surety Guarantees is to provide and manage surety bond guarantees for qualified small and emerging businesses, in direct partnership with surety companies.
SBA helps small contractors by guaranteeing bid, performance, and payment bonds issued by participating surety companies for contracts up to $6.5 million. SBA can guarantee a bond for a contract up to $10 million if a Federal contracting officer certifies that SBA's guarantee is necessary for the small business to obtain bonding.
Are there fees for SBA bond guarantees?
SBA charges the small business 0.729% of the contract price for a payment or performance bond. There is no charge for a bid bond. SBA charges the surety company 26% of the fee the surety company charges the small business.