Small businesses will have more contracting opportunities beginning in Fiscal 2017 thanks to a law President Obama signed recently that increases the maximum Small Business Administration surety bond guarantee percentage by 20 percent.
The President signed the National Defense Authorization Act of Fiscal Year 2016 on Nov. 25, 2015. Among other changes, the Act increases the maximum guarantee percentage in the SBA Preferred Surety Bond (PSB) Program from 70 percent to 90 percent, the agency informed Monday.
“This is the first significant legislative change to the surety bond guarantee program in several decades. 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,” said Frank Lalumiere, Surety Bond Guarantee Program Director at SBA.
Surety bonds help contractors bid on projects, both private and public as they protect project owners in the event the contractor fails to successfully perform the contract. If the contractor fails to perform, the surety company assists the project owner in completing the contract.
“We hope that by increasing the percentage of SBA’s surety bond guarantee we will attract surety companies and agents in Puerto Rico to apply for the program,” said SBA District Director Yvette T. Collazo.
“Our commitment to expand contracting opportunities for small businesses on the island and our efforts to provide added incentives are as strong as ever,” she said.
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 percent 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 would otherwise not issue to a small business. In turn, with the backing of a surety bond, a small business contractor may bid on a project that otherwise it could not bid on.