Surety Bond Hike Makes Change for Small Business

The Connecticut Business & Industry Association reports that small businesses will have more contracting opportunities beginning in 2017. A law recently signed by President Obama increases the maximum Small Business Administration surety bond guarantee percentage from the current 70 percent to 90 percent.

“This is the first significant legislative change to the surety bond guarantee program in several decades,” says Frank Lalumiere, surety bond guarantee program director at the SBA. “It will provide increased incentives for surety bond companies and bond producers to participate in the program, which will expand contracting opportunities for small businesses across the country.”

Surety bonds protect project owners in the event a contractor fails to successfully perform the contract. In such an event, the surety company assists the project owner in completing the contract.

The SBA does not provide direct surety bonds to small businesses; surety companies do. But through its Preferred Surety Bond program, the agency guarantees between 70 and 90 percent of the losses and expenses incurred by the surety company if the small business fails to complete the contract. This government guarantee encourages the surety company to issue a bond that it might otherwise not issue. In turn, with the backing of a surety bond, a contractor may bid on a project that otherwise it could not bid on.