Politicians Off Target: SBA Bond Program Still Draining Taxpayer Money

Legislators have been striving to make improvements to the government run U.S. Small Business Administration (SBA) Bond Guarantee Program for the last couple of years now. Though the changes proposed by various state Representatives have been meant to benefit small contractors; they seem to be pinpointing the wrong target and end up missing the bigger picture.

Representative Bobby Rush (D-IL) recently presented a bill named HR 2424 which would make some changes to the U.S. Small Business Administration Bond Guarantee Program; it would boost the maximum of the contract amount under the SBA Program from $2 million to $5 million and would permit guarantees of up to $10 million in certain cases. The changes in this bill are basically identical to the amendments that Senator Ben Cardin (D-MD) proposed in the economic stimulus package that Congress enacted in 2009 but those have since expired. Small business owners need to be encouraged to take advantage of the SBA Bond Program but these changes aren’t the best way to go about that.

The proposed changes to the SBA Bond Guarantee program essentially allows SBA bonded contractors to either do larger or a larger volume of jobs. While these modifications sound good for small contractors, they shouldn’t be top priority when it comes to getting small contractors aboard the SBA Bond Program. The main reason many contractors and surety companies don’t work with the SBA Bond Program is because it’s difficult to do so; it needs a procedural face-lift. The costs of running the SBA Bond Program are more than double the amount of revenue brought in by the program year after year. The Bond Program is mismanaged which steers sureties away and ends up limiting the surety market quite a bit leaving contractors with few options. There’s also a lot of red tape involved when trying to become bonded through the SBA which automatically drives the small contractors and sureties away.

The amount of money being lost and the lack of participation by contractors make it obvious that changes must be made to the SBA Bond Program; but legislators need to refocus their efforts. The efficiency of the operation needs an upgrade before anything else. Until the effectiveness of the program becomes the main concern, we will continue to see sureties and contractors sidestepping this program that’s intended to provide more opportunities for small businesses.

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.

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