SBA Bonding: A Complete Guide to the SBA Surety Bond Guarantee Program

Introduction

Many small and emerging contractors struggle to qualify for traditional surety bonds due to limited financial strength, lack of work history, or insufficient bonding experience. To help these businesses compete for public and private contracts, the U.S. Small Business Administration (SBA) offers a Surety Bond Guarantee Program, commonly referred to as “SBA bonding.” Under this program, the SBA guarantees a portion of the bond issued by an approved surety company, reducing the risk for the surety and making bonding more accessible to contractors who might otherwise be declined.

This guide explains how SBA bonding works, what types of bonds it covers, who qualifies, how guarantees are structured, what the costs are, and how contractors can apply.

What Is the SBA Surety Bond Guarantee Program?

The SBA Surety Bond Guarantee (SBG) Program does not issue bonds directly. Instead, it guarantees between 80% and 90% of the losses surety companies may incur if a contractor defaults on a bonded project. By sharing the risk, the SBA encourages surety companies to extend bonding to small businesses that may not meet standard underwriting requirements.

The program applies to contract surety bonds, which are often required for public-sector construction projects and many private-sector contracts.

Types of Bonds Covered by SBA Bonding

The SBA guarantees the same types of contract bonds used in construction and service projects:

Bid Bonds

Guarantee that the contractor will enter into the contract and provide performance and payment bonds if selected for the job.

Performance Bonds

Protect the project owner if the contractor fails to complete the project according to the contract terms.

Payment Bonds

Ensure that subcontractors, suppliers, and laborers are paid properly for their work and materials.

Ancillary Bonds

Related bonds required as part of a bonded contract, such as maintenance or supply bonds.

Commercial or license/permit bonds generally do not fall under the SBA program; the program is focused on contract surety bonds.

Why the SBA Created the Program

Small contractors often face barriers that prevent them from obtaining traditional bonding:

Limited Financial Resources

Traditional underwriting places a strong emphasis on working capital, net worth, and internal financial reporting. Many new or growing businesses cannot meet these thresholds.

Insufficient Bonding History

Surety companies typically want to see completed projects of similar size and scope. Contractors expanding into larger jobs may struggle to get bonded without prior experience.

Lack of Established Credit

A newer contractor or one with credit challenges may not qualify for bonds without additional support.

The SBA program levels the playing field by reducing the surety’s risk, allowing more small businesses to participate in bidding and contract opportunities.

How SBA Bonding Works

The SBA shares the risk with the surety company by guaranteeing a percentage of potential losses.

Guarantee Percentage

• 80% guarantee for most contractors.
• 90% guarantee for certain small or underserved businesses, such as socially and economically disadvantaged firms, veteran-owned firms, or HUBZone companies.
•  The higher guarantee incentivizes sureties to bond contractors who may not qualify on their own.

Contract Size Limits

• Up to $9 million for non-federal contracts.
• Up to $14 million for federal contracts when a contracting officer certifies that an SBA guarantee is necessary.

These limits determine which projects can fall under the SBA program.

Program Styles: Prior Approval vs. Preferred Program

Prior Approval Program (PAP)

The surety must submit each bond request to the SBA for approval before issuance.

 The SBA reviews the file, assesses the risk, and authorizes the guarantee.

Preferred Surety Bond (PSB) Program

SBA-approved sureties can issue SBA-guaranteed bonds without seeking prior approval.

 This allows for faster issuance and is often preferred for contractors with recurring bonding needs.

Relationship Between Contractor, Surety, and SBA

1. The contractor applies for a bond through an SBA-authorized surety or broker.
2. The surety underwrites the contractor using standard criteria: financial capacity, experience, project management controls, and business character.
3. When the surety approves with SBA support, the SBA issues a guarantee covering 80–90% of losses.
4. If a contractor defaults and the surety incurs costs, the SBA reimburses its guaranteed share.

Eligibility Requirements for SBA Bonding

Not every business or project qualifies. The SBA has specific requirements contractors must meet.

Small Business Size Standards

The contractor must qualify as a small business under SBA guidelines, which are based on NAICS codes and average annual receipts.

Eligible Contract Types

The contract must require a bid, performance, or payment bond as a condition of bidding or award. License or permit bonds do not qualify.

Contract Size

The contract amount must fall within SBA’s bonding limits (generally up to $9 million, or up to $14 million for federal projects with certification).

Financial and Operational Capacity

The contractor must demonstrate:

• Adequate experience to perform the work
• Acceptable credit and financial condition
• A history of integrity and good character

The SBA guarantee does not override underwriting; it supplements it.

When a Contractor Might Not Qualify

If a contractor already qualifies for traditional bonding without SBA assistance, SBA may decline to provide a guarantee.

Costs Associated with SBA Bonding

Contractors must pay both the surety premium and an SBA guarantee fee.

Surety Bond Premium

This is the standard fee charged by the surety company, determined by underwriting factors such as:

• Bond type
• Contract value
• Risk profile
• Contractor financials

SBA Guarantee Fee

For performance and payment bonds, the SBA charges:

• 0.6% of the contract price
•  There is no SBA fee for bid bonds.

Overall Cost Considerations

While SBA bonding typically costs slightly more due to the additional fee, it provides access to projects and opportunities that may otherwise be unavailable to small contractors.

Benefits of SBA Bonding

Enables Access to Bonding for Smaller Contractors

Businesses with limited working capital, weaker financials, or less experience may gain bonding capacity under the SBA program when traditional sureties cannot approve them.

Supports Growth

Contractors can pursue larger or more complex jobs, expand their reputation, and eventually transition into standard bonding programs.

Encourages Competitive Bidding

Public and private project owners that require bonding gain a wider pool of qualified small business bidders.

Promotes Inclusion

Higher SBA guarantees (up to 90%) help disadvantaged, veteran-owned, and underserved businesses obtain bonding.

How to Apply for SBA Bonding

Contractors cannot apply to the SBA directly for a bond; they must work through an SBA-authorized surety or bond agent.

Step 1: Work with an Authorized Surety or Agency

The agent gathers documents and prepares the underwriting file.

Step 2: Submit Required Documentation

Contractors typically must provide:

• Business and personal financial statements
• Work-in-progress schedules
• Project details
• Resumes or experience summaries
• Bank references
• Credit history reports

Step 3: Underwriting and SBA Approval

• Under the Prior Approval Program, the surety submits the file to the SBA for review.
• Under the Preferred Program, an approved surety can issue bonds without prior SBA review.

Step 4: Pay Premium and SBA Guarantee Fee

After approval, the contractor pays the surety premium and the SBA guarantee fee, and the bond is issued.

Situations Where SBA Bonding Is Most Useful

SBA bonding is especially valuable for contractors who are:

• New to public contracts
• Experiencing rapid growth
• Expanding into larger projects
• Unable to qualify for traditional bonding
• Lacking financial or credit strength
• Looking to build a track record to eventually qualify for standard surety programs

Limitations of SBA Bonding

Although the program expands access, it is not suitable for every scenario.

Contract Size Restrictions

Projects above SBA limits cannot be bonded under the program.

Not a Replacement for Underwriting

Contractors must still meet underwriting criteria related to capacity, credit, and character.

Additional Fees

The SBA guarantee fee increases total bond cost and must be factored into bid pricing.

Not Applicable to Commercial Bonds

Only contract surety bonds qualify.

Frequently Asked Questions

Is SBA bonding only for federal projects?

No. SBA bonding applies to federal, state, local, and private contracts, as long as the contract requires a surety bond.

Does the SBA issue the bonds directly?

No. Bonds are issued by approved surety companies; the SBA provides a guarantee.

Does SBA bonding help contractors with poor credit?

It can help, but contractors must still meet minimum underwriting standards.

What guarantee percentage does the SBA provide?

The SBA typically guarantees 80%, or up to 90% for qualifying small businesses.

How long does the SBA approval process take?

Preferred Program sureties can issue bonds immediately. Prior Approval cases may take longer depending on SBA review.

Conclusion

The SBA Surety Bond Guarantee Program is an important tool for small and emerging contractors who need support accessing bonding for public and private projects. By sharing risk with surety companies, the SBA makes it possible for more businesses to qualify for bid, performance, and payment bonds. While the program includes eligibility requirements, contract size limits, and guarantee fees, it provides valuable opportunities for contractors to compete, grow, and build a strong bonding record over time.