Professional Documents
Culture Documents
SuretyBondGuaranteeProgram
ContractBonds
BondAgents
Prequalification
WhatBondUnderwritersLookFor
Banking,Credit&BondCosts
SBABondGuaranteeProgram
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Agreement between:
Contractor
SuretyCompany
Obligee(projectowner).
TheContractorandagentsignthebondsandthecontractordelivers
themtotheObligee,promisingtocompletethecontractaccordingto
itstermsandconditions.
Upondefault,theSuretymustpaytheObligeemonetarydamagesor
completethecontractthroughprojectfinancingorreplacement
contractors.Thesuretythenproceedstorecoverfromtheprincipal.
The3typesofcontractsuretybondsarecalledbid,performance and
payment bondsandmaybeguaranteedbytheSBA.
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Callafellowcontractorforareferral
Attendalocaltradeassociationmeeting
Advertisementsintradepublications,newspapers,yellow
pages,andonlinesearch
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are
Knowledgeable intheconstructionindustry.
Active inprovidingsuretybondstocontractors.
Access tomorethanonesuretycompanymarket.
- continued
Assistinassemblingtheinitialbondapplicationpackage
Provideongoing&timelyassistance
Findsolutions tobondingproblems
Advocate stronglyforthecontractor
Providereferralcontacts suchasCPAs,bankers,attorneys,
etc.
Pre-Qualification
Prequalifyingmeansknowingwhatyourallowable
bondcreditlevelswillbe,inadvanceofbiddingto
assurebondswillbeavailabletoyou.
Forexample,youneedtoknow:
Contractamount($300,000)
WorkProgram($1,000,000)
Numberofbondedcontractsatonetime(4)
Allowedtypeofcontract(general,electrical,etc.)
Pre-Qualification - continued
Askyourbondagenttohelpyougetprequalified (ifyouhave
notobtainedbondsinthepast)
Giveyourselfplentyofleadtime.
Settingupbondingmaytake2 3weeksormoreattheBond
Company.
Note:Becomingbondableissimilartotheprocessofobtaining
bankcredit.Itsnotsimplyamatterofjustpayingthebondor
insurancepremium.
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Technical&ManagerialAbility
TrackRecord theapplicantspastexperiencedemonstratesthe
abilitytoperformfutureprojects.
FinancialStatements(reliableinhousenumbersorCPA)
FinancialResources(workingcapital,networth,etc.)
Profitability
CreditResources(Banks,Suppliers,Factors)
CreditHistory(Companyandpersonal)
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Oneofthemostimportantfinancialitemstothebondunderwriter.
Measuresyourabilitytomeetcurrentandfuturefinancialobligations
duringtheyear.
Thenumberiscalculatedfromyourcompanybalancesheet:
cash+accountsreceivable+1/2inventory
less:currentliabilities
=WorkingCapital
Youwanttomaximizethisnumberwhenplanningfortheproduction
offinancialstatements.
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Bank Support
A GoodBankingRelationshipisimportant:
Thebondagentwillrequestinformationon:
Accounts(ODs,NSFs)
Cashbalances
LineofCredit(LOC)
LineofCredit? theSBAmaybeabletocountavailableLOCdollarsas
workingcapital.
Gettoknowabankerwhetheryouneedcredityet,ornot.
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Bank Support -
continued
SBAExpressLoan:
Financeshorttermworkingcapitalneeds
$350,000maximumrevolvinglineofcredit
50%guaranteemaximum
36hourturnaroundtime
ContactyourlocalSBAguaranteedLendertoapply
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Credit History
TheBondAgencywillinvestigateyourcredit
ObtainyourCreditReportinadvanceofapplyingforbonds.
Correctinaccuracies
Bondagentwillquestionanycreditproblemsfound:
Bereadyto:
Explainwhathappened
Clearor
Bringcurrent
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Bonding Costs
Includetheseitemsinyourbidestimate(Project
ownersexpecttopayforbondcosts):
AverageBondPremium:2.0to2.5%ofthecontractamount
SBAFee:$7.29perthousandofthecontractamount($729.00
fora$100,000contract)
Averagetotalbondcost:approximately2 3.0%
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Bonding Costs
continued
CPAFinancial
Statements
Banklineofcredit
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90% 8(a)contractors,certifiedHubZonecontractors,minority
contractors,veteranownedandservicedisabledfirmsand all
contractsnotexceeding$100,000.
80% everyoneelsenotcoveredinthe90%categoryabove
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Startupsandfirmsinbusinesslessthan3years
Limitedresources(cash,workingcapital,networth)
Recentlosses
Limitedtrackrecordinsizeofpastjobscompleted
Nopriorpublicworksexperience
Smallbusinesseswhowanttoincreasecurrentbondlimits
Creditissues
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- continued
Smallisdeterminedby:
NAICSCodes (13CFR121.201):
Manufacturing:1yearaverage#employees
Allotherindustries:3yearaverageannualrevenues
ConstructionContractorsareeligible:
If3yearaverageannualrevenuesdontexceed:
$33.5millionGeneral/Building/Underground/Heavy
$14millionSpecialtySubTrades,electrical,concrete
AccesstoallSizeStandardcodesandinformation:
http://www.sba.gov/category/navigationstructure/contracting/contracting
officials/sizestandards
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Contractorgoestohttp://www.sba.gov/content/bondagenciesstate
Selectabondagenttocontact,requestingassistance.
Agentevaluatescredit,character&capacity
AgentappliesfortheSBAbondguaranteeelectronically.
SBAreviewsandapprovesthebondguaranteewithin2 4days.
Agentprovidesthebondtothecontractor.
Note:theagentmayprovidethebondwith,orwithouttheSBAguaranteeordecline
thebond.
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ContractorQuestionnaire
Personalfinancialstatement
Companyfinancialstatements(includingaffiliates)3years
Bankrelationshipinformation
WorkonHandschedule
Completedjobreferences
Resumeforstartups
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- continued
GeneralIndemnityAgreement(GIA)
ToobtainbondingyouwillfirstsignanIndemnityAgreement inwhich
youagreetoreimbursethesuretyforanylossestheypayout.
Youareplacingboth yourpersonalandcompanyassetsatriskifyou
failtoperformortopaybillsassociatedwiththeproject.
SBAContractorForms:
SBAForm994 eachbondguaranteerequest
SBAForm912 onetimeform
http://www.sba.gov/content/bondguaranteeapplicationforms
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Inadequateworkingcapital
Poorpastperformancerecord
Incompletesubmission
Doesnotqualifyasasmallbusiness
Contractsizeexceeds$2million
Ineligiblebondsuchaslicense,subdivisionorfinancial
guaranteebond(exceptTimberSales)
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Goodqualityfinancialstatements(CPAbest)
Obtaincreditwithyourbank&suppliers
Documentpastcontractperformancetobuildup
yourbondcredit
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CertifiedbyTreasuryDept.(TList)
ApplyforSBAParticipantStatus:
http://www.sba.gov/content/admittingnewsuretycompaniesprogram
Receivenotificationofapprovedstatus(OSG)
PriorApprovalProgram(PlanA)80/90%guarantees
PreferredProgram(PlanB)70%guarantee
BothPlans
Certifybondagentstousetheelectronicapplication(PlanA)
BondAgencies:
Agentsapplyforguarantycertificationstatus(throughapprovedSBA
sureties PlanA)
http://www.sba.gov/content/admittingnewsuretycompaniesprogram
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SeattleBondOffice Southern&WesternUS
TomC.Ewbank,Director
2065530961
Usefulinformationonallaspectsofbonding:
www.sio.org
Freeorminimalcostbrochures&CDs
February21,2012
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