Surety Bond Guarantee Program
What Does Surety Bond Guarantee Program Mean?
The Surety Bond Guarantee (SBG) program is administered by the U.S. Small Business Administration (SBA) to guarantee bid, performance, and payment bonds for individual contracts worth $6.5 million or less, specifically for small and emerging contractors. To be eligible, contractors must meet the SBA’s requirements. This program is particularly beneficial as many of these contractors are unable to obtain surety bonds through regular commercial channels.
Insuranceopedia Explains Surety Bond Guarantee Program
A surety bond is a type of insurance that guarantees the performance of a contract. An obligee (such as a business or creditor) requires the services of a contractor (or principal) for a contract. The principal must assure the obligee of their ability to fulfill the contract. To do so, the principal purchases a surety bond, making the surety company responsible for the principal’s obligations. If the principal defaults, the surety company seeks another principal to fulfill the contract. Additionally, the surety company may compensate the obligee for any financial losses incurred due to the default.
The three most common types of surety bonds are:
- Bid bonds guarantee that the bidder on a contract will enter into it and provide the required payment and performance bonds if awarded the contract.
- Payment bonds guarantee that suppliers and subcontractors will be paid for work performed under the contract.
- Performance bonds guarantee that the contractor will complete the contract in accordance with the specified terms and conditions.
