The Small Business Administration (SBA) has finalized a proposed 2023 rule that changes the bonding limits for the Surety Bond Guarantee (SBG) program. Under rule 88FR48739 the SBA can now provide guarantees for surety bonds on single projects of up to $9 million, or $14 million dollars on a federal project if the contracting officer certifies that it is necessary.Â
The former limits would only support single projects of $6.5 million dollars or $10 million on some Federal projects. The former limits have been in place since 2010 and the cost of construction projects has increased significantly since then. According to usinflationcalculator.com, inflation costs have increased 41.4% from 2010 to 2024.Â
The ruling is a win for contractors needing bid bonds, performance bonds and payment bonds. The SBA Surety Bond Guarantee Program provides a means of helping contractors get bonding that they cannot obtain in the standard market. The SBA program reimburse surety bond companies a certain percentage if they suffer a loss on a bond for an approved contractor. These guarantees can be 80% or 90% of the loss, depending on the contractor. The ruling should allow contractors utilizing the SBG program to qualify for larger single projects.
While the limits of the SBG program can help contractors obtain larger projects, it does not guarantee them increased limits. A surety bond company will still need to approve the contractor for the project before getting approved by the SBA. While the new limits help, a contractor will still need to show enough financial strength and experience to qualify for the new program.Â
The SBA still requires contractors to have experience completing projects of at least one half the size of the project they want to bond. For example, for the SBA to approve a $9 million project, they are typically going to want to see that the contractor has completed a project of at least $4.5 million previously.Â
The SBA also requires contractors to qualify from a financial standpoint. In general, they want to see a contractor have at least 5% working capital for the project. For example, a $9 million single bond would require the contractor to have $450,000 in working capital. Fortunately, this is where the SBG program really shines. A contractor can use various means to obtain this required working capital such as an unused portion of their bank line of credit. These types of solutions can help contractors qualify for SBA support when they would not be able to in the standard market.Â
The SBA also still required contractors who want to qualify for these larger projects to obtain a CPA Reviewed Financial Statement. Smaller projects have different requirements, but any contractor wanting to qualify for these new higher limits will certainly need a Reviewed or Audited financial statement.Â
At this time, the SBA has left other costs and requirements the same. The SBA will still charge a 0.6% fee for their guarantee. This is in addition to the bond cost. They also require the contractor to submit additional paperwork and forms. You can read all about the requirements of the program by visiting our SBA Bond Guarantee Program page.
The increased SBA bond limits should be viewed as a great win for contractors. While contractors will still need to be able to qualify the program, it may allow them to bid and obtain larger projects than they could before. Contact the SBA experts at Axcess Surety today so we can get you qualified.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
