SBA Bond Guarantee Program Changes To Help Contractors Obtain Surety Backing?

As of July 25, 2007, the U.S. Small Business Administration (SBA) has changed their Surety Bond Guarantee Program. The goal of the SBA’s recent program changes are to help small contractors get surety bond guarantees. Will the changes make it easier for small contractors to get bonded? Is this just a political move by Senator Olympia J. Snowe (R-ME), the Bonded Contractordesigner of the changes? We originally started to cover the changes being made to the SBA in an article titled “Surety Bond Improvements Act of 2006“. In this article, we will review what changes are being made to the program and how they will likely effect the surety industry.

Change #1 – Flexible Rates
The SBA now allows “preferred” sureties to have flexible rates rather than be stuck using the states rate schedule, which is outdated by most standards. This should encourage more bonding companies to participate in the program.

Pros: Adding more surety carriers to the field will only make the program more accessible to all. It will also create more competition, which SHOULD benefit small contractors.

Cons: Allowing for more flexible rates really means allowing the sureties to increase their rates. Bonding companies clearly were not participating because they had too much to gain. This means the added competition will not lower pricing for small business owners, but may end up increasing them. However, in my honest opinion it is something that had to be done.

Change #2 – Reduced Surety Audits
The “preferred” sureties will have less audits and a 60-day time period to submit surety fees to the SBA.

Pros: Cutting down on red tape is good for the sureties and the SBA as it will increase efficiency of the program and egg on new bonding companies to consider the program.

Cons: None.

Change #3 – Upcoming Electronic Bond Application
Pros: The use of technology has revolutionized the surety industry as a whole, further implementation should further increase efficiency and participation by sureties and more importantly, agents.

Cons: The SBA website is not always the easiest to navigate. If the online application is not done correctly it potentially could create new problems rather than solving old ones.

The SBA’s changes will persuade more carriers to take a look at the SBA program, but will this really make it easier for small business to obtain surety guarantees? Personally, I don’t think the changes have gone far enough. The SBA needs to take a step back and take a look at the big picture…

SBA Surety Guarantee Program IssuesMost bonding companies require principals to obtain their bond through an appointed agency. As an agent, I can tell you we did not have problems placing clients in the SBA’s Surety Guarantee program due to lack of participating bonding companies. However, as an agency we choose to rarely work with the SBA. Why? They are an inefficient government agency that is extremely time consuming. It is unfortunate, as the program is a good idea, but it seems that the employees of the SBA’s Surety Program desperately need retraining. The changes made will not change the red tape and inefficient SBA employees that agents have to deal with. Therefore, our agency will not actively pursue writing SBA accounts. In fact, we only consider it for contractors that we have worked with for years that have fallen on hard times.

On the bright-side, the increased premium rates some of the “preferred” sureties will be charging will increase the commissions made for agents participating in the program. However, our agency still feels that our time can be better spent working strictly with the private sector.

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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