What is a Surety Bond ?

A surety bond

There are four types of surety bonds:

Bid Bond: Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.

Payment Bond: Ensures suppliers and subcontractors are paid for work performed under the contract.

Performance Bond: Ensures the contract will be completed in accordance with the terms and conditions of the contract.

Ancillary Bond: Ensures requirements integral to the contract, but not directly performance related, are performed.

When do I need a surety bond?

Any Federal construction contract valued at $150,000 or more requires a surety bond when bidding or as a condition of contract award. Most state and municipal governments, as well as private entities, have similar requirements. Many service contracts, and occasionally supply contracts, also require surety bonds.

What is SBA’s role?

The mission of the Office of Surety Guarantees is to provide and manage surety bond guarantees for qualified small and emerging businesses, in direct partnership with surety companies.

SBA helps small contractors by guaranteeing bid, performance, and payment bonds issued by participating surety companies for contracts up to $6.5 million. SBA can guarantee a bond for a contract up to $10 million if a Federal contracting officer certifies that SBA’s guarantee is necessary for the small business to obtain bonding.

Are there fees for SBA bond guarantees?

SBA charges the small business 0.729% of the contract price for a payment or performance bond. There is no charge for a bid bond. SBA charges the surety company 26% of the fee the surety company charges the small business.

If you want more information about surety bond, make an appointment with an SBDC Counselor 

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Funded in part through a cooperative agreement with the U.S Small Business Administration (SBA). All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA