What is a contract bond?

A contract bond is a type of surety bond that consists of a three party agreement that between

-Small Business (The Principal)

-Surety Company

-The Project Owner (Obligee)

It is a good idea to recommend small businesses use contract bonds in lieu of ILOC or cashier's check. Contract Bonds provide protection from unlawful claims while allowing businesses to maintain working capital.

Various Types of Contract Bonds

Bid Bond- this type of surety bond provides a guarantee that if the principal is awarded a contract they will provide the necessaryperformance and payment bonds.

Performance Bond- this type of surety bond guarantees that all obligations will be fulfilled according a contract's terms and conditions.

Payment Bond- this type of surety bond guarantees all sub-contractors, employees, and material suppliers will be fully compensated for their work.

Maintenance Bond- Similar to warranty, this type of surety bond guarantees that any defects in the workmanship or materials will be remedied within a specific period of time. (typically one or two years)



What is the SBA and how does it effect Surety Bonds?

SBA stands for U.S. Small Business Administration. SBA provides and manages surety bond guarantees for qualified small and emerging businesses through the Surety Bond Guarantee (SBG) Program. Participating sureties receive guarantees that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract. The SBG is administered through the Office of Surety Guarantees (OSG).



Factors to Consider

When applying for a bond there are a few factors that most companies will take into consideration:

Management Track Record- Previous experience and performance is typically considered to establish a single bond limit.

Financial Resources and Responsibility- The working capital, credit resources, credit history of the business and it's owners,profitability, and overall financial resources of a company will determine the total bonding capacity. Working capital is the primary factor when considering total bonding capacity.

SBA Advantage: SBA includes the available balance on a BLOC as additional working capital!

Additionally, establishing a good relationship with your bank is important as the surety will request a bank reference letter.



Application Process


Small Business contacts SBA approved Surety Bond Agent with a request for assistance with the bond application process.
The SBA approved surety bond agent will evaluate credit, character and capacity.
The Surety Agent will obtain surety approval.
Surety Bond Agent will apply for a bond guarantee to SBA electronically on behalf of the small business.
SBG (Surety Bond Guarantee Program) staff reviews and approves qualified applications. This process typically takes 2 days or less.
Surety Agent provides the bond to the small business



NOTE: Participating Sureties may bond a business with or without an SBA guarantee or decline to bond the business if it does not meet the standards required for qualification.

Your Surety Insurance Agent may request:


Contractor Questionnaire

Owner's personal financial statements

Company financial statements (3 years + current)

Banking relationship information



SBA Forms


SBA Form 994- Application for Surety Bond Guarantee Assistance

SBA Form 912- Statement of Personal History





QuickApp for Jobs up to $250,000


Eliminates WIP & Business and Personal Financial Statements for SBA

Relaxed SBA underwriting

All types of work accepted except for environmental, demolition, timber sales, and projects already in progress

Liquidated Damages up to $1,000 Per Day

Maintenance Terms Up to Two Years


This content is originally taken from https://jamesburgersite.wordpress.com/2016/10/19/what-is-a-contract-bond-what-is-sba-guarantee/

Need a Surety Bond? Service Insurance Company The Service Insurance Company proudly provides surety bonding services in New Jersey, New York,Pennsylvania, Connecticut, Delaware, Maryland, New Hampshire, Rhode Island, Massachusetts, andVirginia.Contact us by calling 973-731-7650 or by visiting our website http://www.serviceinsurancecompany.com