July 28, 2009 by Michael Weisbrot
The SBA has increased their maximum bond amount for a second time this year. In February, we wrote an article on the stimulus bill which spoke of an increase from $2 to $5 million.
Technically, the ceiling is still at $5 million (see: SBA FAQ). The changes allow up to $10 million only when “the contracting officer certifies that the guarantee is in the best interests of the government”. However, most news agencies are reporting it as a flat increase.
The SBA surety program is quite paper intensive as is. Certainly, there will be more paperwork to show the contracting officer agrees that it is in the best interests of the government.
One of the main differences in underwriting using the SBA program is how they calculate working capital. Under the SBA program a bank line of credit is considered working capital, which is not the case with normal surety underwriting. This allows contractors to qualify for bond lines that are larger than they could obtain through traditional avenues. Unfortunately, the credit crunch has caused banks to reduce or close line of credits previously available to contractors. Such changes to our financial system have had a direct impact on bond lines provided through the SBA program.
This leaves me to wonder, would there be more benefit in reviewing the current SBA procedures rather than increasing the maximum bond amount? Sure, it wouldn’t look as good in the news headlines, but it might have more of an impact with the contractors they are trying to assist.
