SBA Surety Bond Guarantee (SBG) Bond Program – The Unspoken Alternative

By: Alicia Marasco (Capstone Brokerage) November 2013

If your company is having difficulty obtaining a contract bond from a standard bond market there is another option. In 1971, the Small Business Association (SBA) created the Surety Bond Guarantee (SBG). The Surety Bond Guarantee is a program used to assist small, emerging, and disadvantaged contractors. The program allows them to obtain bonds that were otherwise unavailable to them. One of the major benefits the SGB Bond Program brings to the table for contractors is the ability to increase opportunities to obtain contracts.

Some situations that may benefit from this are small minority companies and business located in underserved areas. By allowing such contractors to carry bonds they are able to grow their businesses and create jobs. The bonds are guaranteed by the SBA so it covers the risk associated with using a smaller company for a bigger job. The SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract.

There are two types of bond companies in the SBG Program, the Surety Bond Company that is in the Prior Approval Program (PAP) and the Preferred Surety Bond Program (PSB). The main difference in the two is that those companies in the Prior Approval program require the SBG to approve the issuance of their bonds whereas with the Preferred Surety Bond Program they have the authority to issue, monitor and service bonds without prior SBA approval. Having the PSB encouraged larger surety companies to help expand small businesses.

Many contractors are unaware of this alternative; this is where having a qualified licensed insurance agent can help your company to expand on their full potential. Understanding the way the bond programs works can be the most useful tool in navigating proper coverage.