The value of construction projects in Denver this year is on pace to set a record. And now the U.S. Small Business Administration has made two important changes to its Surety Bond Guarantee Program that should help small contractors land more of that business.
Under its program, the SBA partners with surety companies to partially guarantee bonds. This lowers the risk for the surety bond providers, making it easier for small contractors to attain bonds and compete for private and public projects.
In the first change, the SBA boosted the guarantee percentage in its Preferred Surety Bond Program from 70 percent to 90 percent in some cases.
The change applies to contracts in the amount of $100,000 or less. The guarantee also will be 90 percent if the bond is issued to a construction firm that is owned and controlled by socially or economically disadvantaged individuals, veterans, or certified HUBZone and 8(a) businesses. All other guarantees will be set at 80 percent.
The change is expected to encourage more surety companies to join the SBA program, which, in turn, should mean more opportunities for small contractors who might otherwise not qualify for a surety.
Related: Hiring a Subcontractor? Let a Surety Take on the Risk
Under the second change, the eligible contract amount under the SBA’s Quick Bond Application will go to $400,000 from $250,000. The Quick Bond is a streamlined application process, with reduced paperwork requirements.
Under its wider bond program, the SBA guarantees bid, payment and performance bonds for contracts up to $10 million with a federal contracting officer’s certification.
In virtually all public projects (and in many private projects), the owner requires the general contractor to post a performance bond and a payment bond. A surety bond tells the client that you abide by the regulations and laws governing your industry. Surety bonds also act as a safeguard against poor performance or dishonest behavior.
Contractors who are bonded send a signal to customers that they are safe to do business with because of the financial security the bond provides.
While the SBA’s moves will no doubt help, surety providers will still look closely at your company’s financial strength before issuing a bond, so it pays to always keep a close eye on your books.
Tom Patton is a Surety Advisor with CCIG. Reach him at TomP@thinkccig.com or 720-330-7922.
CCIG is a Denver-area insurance brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you lower your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.
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