SBA to reduce fees for surety bond program

The U.S. Small Business Administration began implementing fee reductions for its Surety Bond Guaranty Program July 1.

The announcement, by SBA Administrator Aida Alvarez, came after two years of increases in recoveries and decreases in claims, according to a July 2 news release.

"In the tough competition for construction and service contracts, the SBA's surety bond program can spell the difference between success and failure for thousands of small contractors without the resources to qualify for surety bonds on their own," Alvarez said in the release.

"It is with great pleasure that I announce this fee rollback, making this important program more affordable for the small businesses that rely on it," she added.

The new reductions will be cutting the fee charged by surety companies from 23 percent of the bond premium to 20 percent, the release said.

The new reductions now implemented can be attributed to the lower amount of claims against SBA guaranties and an increase in recoveries on default bonds, Alvarez stated.

A revolving fund, developed from the two fees collected by SBA, is used to pay the claims on sureties that have defaulted.

The improvement of claim results and recoveries has enabled the formation of a reserve large enough for the reduction of fees, the release said.

The surety bond program exists to provide emerging and small contractors an opportunity to fulfill bond requirements and be competitive within the industry of construction.

Surety bonds are required on virtually every sizable public construction project, service contracts and numerous private sector projects to guarantee that the project's contractor will meet all a contract's terms and conditions.

The bond program enables small businesses to compete for the best prices and savings on project contracts. More than $1 billion has been saved since the program was created, SBA stated.

The bond program operates at little expense to taxpayers, since the majority of the program's funding comes from the $10 billion income generated by the fees for the surety bonds and the contracts themselves, the release said.

The total net loss through the surety bond program is less than 2 percent, and the program in the 1997 fiscal year backed more than 4,020 bonds for contracts valued at approximately $818.65 million.

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