September 9, 2009 by Michael Weisbrot
The Federal Stimulus fund will refund surety bond premiums for contractors ARRA transportation infrastructure contracts.
See: Disadvantaged Business Enterprise American Recovery and Reinvestment Act Bonding Assistance Reimbursable Fee Program (DBE ARRA BAP)
“This new program, which will be administered by the Department of Transportation’s Office of Small and Disadvantaged Business Utilization (OSDBU), allows small and disadvantaged businesses to apply to be reimbursed for bonding premiums and fees incurred when competing for, or performing on, transportation infrastructure projects funded by ARRA. The program will be especially helpful for businesses with traditionally less working capital than larger contractors.”
The headline sure catches the eye, but how realistic is it? According to the site, only “small and disadvantaged businesses” can apply. When you read further down, it seems that they classify these businesses by their low working capital; one of the main items looked at when reviewing a contractor’s surety capacity.
Fortunately, it does allow the SBA bonded contractors to apply. However, SBA contractors’ bond lines are often reduced due to their lines of credit being reduced or terminated (SBA counts LOCs as working capital).
In other words, the government is willing to provide stimulus funds to refund contractors’ bond premiums, but only for contractors that don’t actually qualify for surety bonding.
Category: Contract Bonds, Surety NewsTags: premium refund, SBA, stimulus, stimulus package, surety bond | Comments (8)
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.
Category: Contract Bonds, Surety NewsTags: Bid Bonds, legislation, performance bond, Performance Bonds, SBA, underwriting | Comments (0)
