Small businesses that want to become more competitive and bid on projects requiring surety bonds, can look to the Small Business Administration (SBA) for the help they need to step up to that next level of business success. Unknown by many small businesses, SBA offers bid, payment and performance bonds.

A surety bond is a three-party agreement between a surety, the contractor, and the project owner. The bond binds the contractor to comply with the terms and conditions of a contract. The surety assumes the contractor’s responsibilities and ensures that the project is completed when a contractor is unable to perform.

Because of the protection surety bonds provide, government regulations require surety bonds on federally funded construction projects in excess of $100,000. Today, virtually all states, including Arizona, have their own statutes and now almost every public construction project across the country requires surety bonds.

The SBA’s Surety Bond Program can help small business contractors and manufacturers overcome challenges they face in winning government contracts and private-sector contracts. The concept of surety goes back thousands of years. Historical records show a personal surety assuring an Egyptian Pharaoh that a farmer will place an agreed upon amount of grain, of a specific quality, and by a certain date, into ruler’s coffers.

There are three types of bonds – Bid, Payment, and Performance. A bid bond guarantees the bidder on a contract will enter into the contract and furnish the required payment and performance bonds. A payment bond guarantees payment from the contractor of money to persons who furnish labor, materials equipment and/or supplies for use in the performance of the contract. Lastly, a performance Bond guarantees the contractor will perform the contract in accordance with its terms.

Half of all construction firms in business today, including those Arizona, will not be in business six years from now, according to the Associated General Contractors, a construction industry trade association. An economic downturn such as a housing slump, labor difficulties, material shortages, the death of a key employee, equipment problems, bad weather, even fraud, can bring a project to a standstill, often causing the contractor to default and bills to go unpaid.

With the SBA’s program, the SBA guarantees surety companies against losses sustained as a result of a contractor’s default on a guaranteed bid, payment or performance bond, making them more willing to issue bonds for smaller, newer companies. The SBA can guarantee these bonds for construction, service, and supply contracts up to $2 million for eligible small contractors.

SBA’s contractual relationship as it pertains to the guarantee, is directly with the Surety Company or its agent and/or managing general agents. The surety issues the bond to a small business contractor and a small contractor must first find an agent or surety company to start the process.

To find an agent or surety, the SBA District Office provides a current listing of agents located in Arizona, who participate in SBA’s bond guarantee programs. The SBA charges fees to both the contractor and the surety company but does not charge the contractor a fee for a bid-bond guarantee.

Arizona small businesses can also apply directly on line at http://www.sba.gov/eapplication/ SBA’s new E-App System allows you to quickly submit your application for bond assistance and is available seven days a week, 24 hours a day.

Using the SBA’s Surety Bond Program can open up more business opportunities for Arizona small businesses. It could pave the way to obtaining a federal, state, county, municipal or private sector contract, and another, and another, and another.

For more complete information on the Surety Bond Guarantee program and a listing of local sureties, visit SBA’s local website at http://www.sba.gov/az and click on the link "SBA Surety Bond Program" under Spotlight.