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SBA Surety Bond Guarantee Program

SBA Surety Bond

The SBA Surety Bond Guarantee program provides a way for small businesses to get assistance with acquiring surety bonds. The U.S. Small Business Administration (SBA) created the SBA bond guarantee program to help emerging businesses get the surety bonds they need to compete in the marketplace, which in turn can help strengthen the national economy.

This program assists small businesses in acquiring surety bonds when they otherwise would not be able to, by providing financial guarantees to surety bond providers. Utilizing the SBA Surety Bond Guarantee program is similar to the standard bonding process; however, there are some additional surety bond requirements for SBA contract approval, which we will explore below.

What is an SBA Surety Bond

Simply stated: an SBA surety bond guarantee isn't a bond but rather a means to get different surety bond types. Whenever you hear that term, consider it to be synonymous with the SBA Surety Bond Guarantee program. It's a common misconception that the SBA issues surety bonds themselves. Rather, they agree to back businesses that wouldn't have qualified for a surety bond otherwise, meaning they agree to settle a percentage of any claims filed against the bond – funds which the surety would normally cover on their own. Thanks to the backing of the SBA, the risk to the surety associated with bonding some small businesses is reduced, allowing surety companies to issue more of the surety bonds small businesses need.

Why Do SBA Surety Bonds Exist?

The Small Business Administration (SBA) runs various initiatives designed to promote and support entrepreneurial efforts across America. The SBA was created to help people who have an idea for a business and the initiative to open one, but they need assistance to start, survive, or thrive – SBA surety bonds are one such example.

By helping small business owners get the bonds they need to sell goods and services, employ people, and bolster economic activity, the SBA promotes business creation nationwide. Their support in the form of surety bond guarantees removes what can be a major business barrier for some. Bonding issues don't have to hold back business opportunities for founders, presidents, and executives that take advantage of the SBA bonds. Remember, they exist for a reason: to help anyone that qualifies.

How Does an SBA Surety Bond Work?

The SBA Surety Bond Guarantee (SBG) program covers various types of contract surety bonds like bid bonds, performance bonds and payment bonds for contractors that meet the requirements to be considered a Small Business by Federal financial guidelines. As such, commercial surety bonds such as license and permit surety bonds are not covered. This SBA SBG program has been helping businesses for nearly fifty years.

The SBA has certain criteria that have to be met in order to qualify for the surety bond guarantee program. These requirements include:

  • Small business classification. Your business has to be considered small by the SBA in order to qualify for assistance. In order to determine whether you are eligible, you can use the SBA's Size Standards Tool.
  • Limited contract size. Your contract has to be under $6.5 million for non-federal contracts and up to $10 million for federal contracts. The SBA has a QuickApp program with a single bond limit of $400K with NO aggregate limits and no financial requirements.
  • Credit, capacity and character. The SBA only qualifies businesses that meet their underwriting standards and are determined to be capable of getting the job done right.

The hardest part of the SBA surety bond program may be figuring out who is and isn't eligible. Viking Bond Service is here to help business creators in all 50 states figure out whether they qualify for SBA surety bonds (or even need these bonds), then take the appropriate next steps.

Who Should Get an SBA Surety Bond?

Anyone who needs a contract surety bond but struggles to get approved should take advantage of this program – provided they meet the requirements outlined above. Specifically, here are some examples of the types of businesses that benefit from this program:

  • New businesses and startups that are under three years old
  • Businesses with limited work history
  • Businesses that lack financial resources
  • Businesses suffering through recent losses
  • Businesses with poor credit
  • Businesses that want to increase their bond limits

Any of these circumstances can make it difficult to get approved for a surety bond – which then makes it tough to keep the business running. As advocates for small businesses everywhere, the SBA exists to help businesses like these. And that's why they created the surety bond program in the first place and why it has proved so successful for almost five decades now.

Who Are the Parties Involved in an SBA Surety Bond?

Traditional surety bond agreements involve three parties. This arrangement does too, but in a slightly different way.

  • Bonded Contractor – The principal on the bond, this is the small business seeking the surety bond.
  • Surety backed by the SBA – This is the company that issues the bond. The surety is able to qualify applicants, who otherwise would not qualify, by using the SBA surety bond guarantee.
  • Obligee – This is the company or government agency that owns the contract and is owed the obligation by the principal, the bond-holder.

How Much Does an SBA Surety Bond Cost?

The cost of a surety bond can vary depending on the type of surety bond. When considering an SBA Surety bond, the SBA Contractor fee is a flat fee of 0.6% of the required bond amount. The fee is paid to the SBA, not the surety. This fee was recently reduced from 0.729%. The 0.6% fee took effect on October 1st 2018, and is intended to last until September 30th 2019 but has since been extended.

The surety providing the contract bond still charges its normal premium as well. Remember, the surety issues the bond, and the SBA provides a guarantee to the surety to entice them to bond more small businesses. The surety bond premium varies per application based on many details such as the contracted job, applicant's credit, financial standing, and job history. Being that there is no general range for these premiums, the best way to get an accurate quote is to apply.

How Are Claims Handled for SBA Surety Bonds?

A surety bond is an agreement that allows one party to file claims seeking financial compensation for damages caused by another party. When claims happen, the surety company that issues and backs the bond pays the party that has been wronged, then the surety collects the amount of payment from the principal. If a business has been denied a bond, it's because the surety has assessed the risk of the bond-holder either not being able to complete the contract or not being able to settle any potential claims with the surety, to be too high.

That's where the SBA gets involved. By agreeing to cover a large percentage of the surety debt associated with settling claims (80-90%), the SBA helps the surety manage risk and cover losses, which then makes them more confident about signing bond agreements with businesses that might not otherwise get approved.

The claims process will also involve an investigation to verify the misconduct and losses the obligee blames on the principal. Claims are never settled outright. The surety uses whatever resources necessary, including lawyers, accountants, or investigators, to confirm or deny the claim. Invalid claims get rejected, and the surety settles valid claims directly with the obligee. If the surety settles a claim rather than the principal, the principal now has to repay the surety for the amounts expended settling the claim.

How to Apply for an SBA Surety Bond?

The first step to obtaining a surety bond is to work with a qualified surety bond agency such as Viking Bond Service. These surety bond agents will first make an effort to place bonds outside of the SBA's program. However, if it is found that utilizing the SBA surety guarantee is necessary for the bond to be approved, the agent will move forward with the SBA bond application process. Your surety expert can then guide you through the process of getting SBA bond approval.

The SBA program application process is more in-depth than the usual performance bond application process, as there is an additional layer of scrutiny conducted by the SBA for your bond request. The SBA is strict with its requirements, time frames and deadlines, so it's imperative that you work with a qualified surety provider such as Viking Bond Service to make sure the process progresses smoothly. It's also worth keeping in mind that your fee due to the SBA is due upfront before obtaining the final bond.

Are SBA Surety Bonds Worthwhile?

Securing a bond through this program will cost slightly more (0.6% of the bond amount) than securing the same bond without the help of the program. That raises an important question for cost-conscious business owners: are SBA surety bonds worthwhile despite the extra cost?

They certainly are when you consider the alternative – being turned down for a bond. Businesses that can't get a bond, especially in the construction and contracting industry, are effectively barred from doing business. They won't be able to attract customers, close deals, or cultivate a customer base – all because of bonding issues. When the future of a business hangs in the balance, the small cost paid to the SBA seems easy to accept.

Viking Bond Service helps entrepreneurs find the best offers available. Whenever possible, we help people who have been denied a bond or risk being denied due to credit find competitive offers from reputable providers. And when those offers are not available, we help entrepreneurs enlist the help of the SBA. That means the extra costs of SBA surety bonds only come into play when there are no other options.

Why Choose Viking Bond for Your SBA Backed Surety Bond?

Here's a common mistake small businesses make when seeking an SBA backed surety bond: They assume that since the SBA backs the surety bond and makes getting approved more likely, it doesn't matter where they apply for a surety bond. In fact, the opposite is true. Since you have the backing of the SBA, you can be selective about who you choose as a surety agency. That way, you can work with the leading agencies in the industry and take advantage of the value they offer small businesses.

Viking Bond Service serves as the bond partner for small businesses of all shapes and sizes located all across the country. Entrepreneurs who need both a surety bond and a great bond partner choose to work with our surety agency for a number of reasons. Many are drawn to our easy application process and affordable surety bond options. Others like the in-depth service we offer to each and every person we bond. Our mission is to make bonding simple, accessible, and stress-free, which is why many small businesses that obtain their first surety bond from us keep coming back for ALL their bonding needs.

We know the ins and outs of SBA backed surety bonds, and we're happy to walk you through the details. Make sure you're taking full advantage of this program by speaking to a member of our team. We've got the facts, along with tips that can help you navigate this process smoothly and get a better result for your business. Not to mention the fact that we issue a huge range of surety bonds, including the kind your small business needs.

Why extend your search for a surety bond any longer than necessary? Viking Bond Service offers everything you need, along with everything you could want from a surety bond partner. Contact us, and you're in good hands.

Your Source for SBA Backed Surety Bonds

Viking Bond Service, one of the top trusted surety bond agencies in the nation, has the expertise and the experience to get your small business the surety bonds it needs, whether SBA approval is required or not. We're committed to providing a superior level of service that helps drive confidence in your business. Contact us with questions. For an instant SBA Surety bond quote, give us a call at 1-888-2-SURETY (1-888-278-7389) or fill out the contact form on this page to have one of our agents contact you.

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