Source: State of California Contractors State License Board, “What is a Surety Bond?” http://www.cslb.ca.gov website. Accessed November 11, 2015. https://www.sba.gov/content/surety-bonds-basics

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

Eligibility Requirements for Small Business Contractors

To be eligible for a surety bond guarantee:

• Your business must be classified as small. The business combined with its affiliates must not exceed the size standard designated for the primary industry of the business together with its affiliates. Use the Size Standards tool to determine if your business is classified as small.
• You must need an SBA guarantee to obtain a bond.
• The size of the public or private contract or subcontract must not exceed $6.5 million or $10 million if a Federal contracting officer certifies that SBA’s guarantee is necessary to obtain bonding
• Your business must satisfy credit, capacity and character evaluations completed by the surety company or an agency representing the surety company.
• There must be a reasonable expectation of successful contract performance.
• The contract must require a bond.

How to Apply for a Surety Bond

1. To apply for a surety bond, you must first choose a surety company or bonding agent who represents a participating surety company. View a list of participating Prior Approval Surety Companies, Preferred Surety Companies and Agents.
2. You must then complete the surety’s application and provide the necessary credit, capacity, and character information. The surety or agent will underwrite the application and decide whether to issue the bond, and whether an SBA guarantee is required.

Prior Approval Program: If the surety company requires an SBA guarantee as a condition of issuing the bond, you can submit applications by paper or online through the E-App system. The SBA forms listed below must be printed and signed even if you are applying online.

• SBA Form 990A – Quick Bond Guarantee Application and Agreement
• SBA Form 994 – Application for Surety Bond Guarantee Assistance
• SBA Form 991 – Surety Bond Guarantee Addendum
• SBA Form 912 – Statement of Personal History
• SBA Form 994F – Schedule of Work in Process
• SBA Form 413 – Personal Financial Statement

About the E-App System

The online surety bond application system, or E-App, will automatically prompt you to print, sign and mail the required forms to your surety company or agent. Follow the steps below to use E-App.

1. To access E-App, you must register for an account in the SBA’s General Login System (GLS), which is the login point for all SBA services. After you have completed and submitted the information on the Login Information screen, you will be emailed your ID and a default password.
2. The first time you log into the SBA General Login System – “Choose Function” screen using the default password, the Change Password screen will appear. Use this screen to select a permanent user password of your choice.
3. On the General Login System – Choose Function screen, select “Surety Bond Guarantee Applications,” and follow the instructions on the screen to complete and submit your first application.

For more information on how to apply online, view the contractor’s user’s manual orapplication training tutorial. You can also call SBA’s Office of Surety Guarantees in Washington, D.C. at (202) 205-6540 or 800-877-8339.

Related Forms:

• SBA Form 990A – Quick Bond Guarantee Application and Agreement
• SBA Form 413 – Personal Financial Statement
• SBA Form 912 – Statement of Personal History
• SBA Form 991 – Surety Bond Guaranty Addendum
• SBA Form 994 – Application for Surety Bond Guarantee Assistance
• SBA Form 994F – Schedule of Work in Process

Preferred Program

Follow the steps below to apply for the Preferred Program.

1. To apply for any SBA surety bond guarantee, you must first choose a surety company in the Preferred Program. Find a surety company participating in the Preferred Program.
2. The application process under the Preferred Program is paper only. You can contact the Preferred Program surety that you select to discuss application requirements. The surety will underwrite the application and decide whether to execute the bond and whether an SBA guarantee is required.
3. Complete the required forms below and mail them to the Preferred surety company:

• SBA Form 994 – Application for Surety Bond Guarantee Assistance
• SBA Form 991 – Surety Bond Guarantee Addendum
• SBA Form 912 – Statement of Personal History
• SBA Form 994F – Schedule of Work in Process
• SBA Form 413 – Personal Financial Statement

 

Source: State of California Contractors State License Board, “Eligibility Requirements for Small Business Contractors” http://www.cslb.ca.gov website. Accessed November 30, 2015. https://www.sba.gov/content/contractors

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

• What is a Surety Bond?A surety bond is a written agreement between a Surety Company and the Contractor, or Principal that helps protect the project owner, or Obligee, in the event the Contractor fails to successfully perform the contract. If the Contractor fails to perform, the Surety Company assists the Obligee in completing the contract.All Federal construction contracts greater than $150,000 require a surety bond as a condition of contract award. Very often, the Contractor must provide a “bid” bond in order to bid on a Federal contract. The bid bond tells the Project Owner that if the contract is awarded to the contractor, the contractor will be able to obtain a “performance” bond. So, there are generally two types of bonds, a bid bond when submitting a bid on a project, and a performance/payment, or final bond, that is required for contract award.
• How does a Small Business apply for a bond?Any business, large or small, must apply for a bond with a Surety Company or an agent that is authorized to represent the Surety Company. The business is then evaluated as part of an underwriting process that assesses such business attributes as character, capability and capacity. The purpose of underwriting is to gauge the likelihood that the contractor will successfully perform the contract.View a list of Surety Companies, or search the SBA Surety Bond Guarantee System to find Agents empowered to represent participating surety companies.
• How does the SBA Surety Bond Guarantee Program help a Small Business obtain bonding?During the underwriting process, a Surety Company or an Agent may find that the small business presents a degree of risk beyond that which the Company or Agent is willing to assume without the SBA Guarantee. For example, a small business may have limited working capital or lack evidence of prior, successful contract performance that causes concern. Under the Surety Bond Guarantee Program, SBA guarantees between 70 and 90% of the losses and expenses incurred by the Surety Company should the small business default and fail to complete the contract. This Government guarantee encourages the Surety Company to issue a bond that it would otherwise not issue to a small business.
• What is the underwriting process?The underwriting process assesses the contractor’s capability and capacity to perform the contract, as well as the contractor’s character. The purpose of underwriting is to determine whether there is a reasonable expectation that the contractor can successfully complete the contract.Among other areas addressed during the underwriting process with a Surety Company or Agent are the following:
  1. personal financial status of the business owners/IRS tax forms, etc.
  2. company financial status / balance sheet and income statement. [CPA prepared statements may be required, depending on the quality of statements prepared in-house, and the size of the prospective contract.]
  3. bank & credit information
  4. a schedule of contracts on hand and the stage of completion
  5. resumes of key business owners
  6. a business plan

  The Surety Company or Agent may decline to issue a bond without an SBA guarantee. If, however, the Surety Company applies to SBA for the bond guarantee, completion of the following forms is necessary:

  1. SBA Form 994, Application for Surety Bond Guarantee Assistance
  2. SBA Form 912, Statement of Personal History
  3. SBA Form 994F, Schedule of Work In Process
• Does SBA issue bonds?No. SBA does not issue bonds. SBA guarantees bonds issued by participating surety companies.
• What types of businesses are eligible to participate in SBA’s Surety Bond Guarantee program?Generally, all small businesses, whether they are sole proprietorships, partnerships, or corporations, are eligible to participate.
• What is the maximum contract size that can be considered for an SBA bond guarantee?Individual public and private contracts and subcontracts of $6.5 million or less are eligible. 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. There is no limit to the number of bonds that can be guaranteed for any one contractor.
• May I change agents and/or surety companies?SBA does not designate a particular agent or surety company for a small contractor. The small contractor is free to change agents or sureties.
• My business is incorporated in one State, but most of my work is done in another. Which SBA office would handle my application?The application is handled by the SBA Area Office that services the State where your business is located. Only applications in the Prior Approval Program must be reviewed and approved by SBA.
• Do I have to be an 8(a) contractor to participate?No. You do not have to be a participant in 8(a) to participate in the Program.
• May I obtain an SBA bond guarantee even though I am not a U.S. citizen?Yes, but you must be a legal alien bearing a registration card that entitles you to work in the United States.
• May I obtain an SBA guarantee even if I have been bonded before without one?Yes. If a contractor is unable to obtain a bond on reasonable terms and conditions, an SBA guarantee may be provided. Please note, a contractor must not obtain some bonded work without an SBA guarantee and other work with the SBA guarantee. All bonded work must be SBA guaranteed.
• What are my costs for obtaining an SBA bond guarantee?All final bond (Payment/Performance) applications require you to pay a fee amounting to .729% of the contract price. If for some reason the bond is cancelled or not issued, the guarantee fee will be returned. SBA does not charge a contractor for bid bond guarantees.
• How long does it take for SBA to process an application?Generally, it takes only three to five days to process an application.
• May I contact SBA regarding the status of my application?Since SBA’s contractual relationship is with the surety, SBA does not interact directly with contractors. You must contact your agent or surety to find out the status of your application.
• How long can I participate in the program?There is no limit on the length of time a contractor may participate, but the goal is to help contractors become bondable without SBA assistance.
• May I use both the Prior Approval and PSB programs to get an SBA guarantee?Yes. You are free to choose from either program in order to obtain an SBA guarantee.

Source: State of California Contractors State License Board, “Frequently Asked Questions” http://www.cslb.ca.gov website. Accessed November 30, 2015. https://www.sba.gov/content/frequently-asked-questions-0

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

Dear Valued Customer,

A surety bond is a written agreement between a Surety Company and the Contractor, or Principal that helps protect the project owner, or Obligee, in the event the Contractor fails to successfully perform the contract. If the Contractor fails to perform, the Surety Company assists the Obligee in completing the contract.

This issue of “—————” is focused on explaining the “ins and outs” of surety bonds and how they can protect you’re your customer and your employees.

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