SBA SOP 50 45 4, The Surety Bond Guarantee Program
Summary
SBA Standard Operating Procedure SOP 50 45 4, The Surety Bond Guarantee Program, from the Office of Surety Guarantees in the Office of Capital Access, effective November 21, 2024 and authorized by Jermaine Perry, Director, Office of Surety Guarantees. Its stated purpose is to provide guidance on the procedures and program requirements of the Surety Bond Guarantee Program for all SBA employees and Surety Partners. The contents begin with a general overview of the program, its introduction and authority and its mission, objective and purpose, and continue through the program's procedures.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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50 45 4
SBA SOP 50 45 4
The Surety Bond Guarantee
Program
Office of Surety Guarantees
Office of Capital Access
U.S. Small Business Administration
Effective Date: 11/21/2024 1
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Small Business Administration
Standard Operating Procedure
National
Subject: The Surety Bond Guarantee Program
S.O.P. Number: 50 45 4
Revision Number: Not Applicable
Purpose: To provide guidance regarding the procedures and program requirements of the
Surety Bond Guarantee Program.
Personnel Concerned: All SBA employees and Surety Partners
SOP Canceled: Not Applicable
Originator: Office of Surety Guarantees
Authorized By: Jermaine Perry, Director, Office of Surety Guarantees
Effective Date: November 21, 2024
Effective Date: 11/21/2024 2
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Contents
Chapter 1. General Overview of the Surety Bond Guarantee Program ............................................. 5
1. Introduction and Authority ................................................................................................... 5
2. Mission, Objective and Purpose............................................................................................ 5
3. Program Operation................................................................................................................ 5
4. Program Administration........................................................................................................ 6
5. Surety Bond Guarantee Approval Authority in the Prior Approval Program ..................... 7
Chapter 2. SBA’s Surety Bond Guarantee Agreement ........................................................................ 9
1. Terms and Conditions of SBA’s Guarantee .......................................................................... 9
2. Prior Approval Guarantee Agreement (SBA Forms 990).................................................... 10
3. Preferred Surety Bond (PSB) Agreement ........................................................................... 10
4. Maximum Contract Amount................................................................................................ 10
5. Guarantee Percentage – All Programs................................................................................ 11
6. Cost of SBA’s Guarantee ...................................................................................................... 14
Chapter 3. Surety Eligibility and Participation Requirements ......................................................... 21
1. Eligibility Criteria.................................................................................................................. 21
2. Application Procedures ....................................................................................................... 23
3. Approval for Surety Participation ....................................................................................... 25
4. Conditions of Surety Participation ..................................................................................... 26
5. SBA Web Icon Guidelines..................................................................................................... 28
6. Electronic Form of Signature .............................................................................................. 31
Chapter 4. Co-Surety and Reinsurance ............................................................................................. 35
1. Co-Suretyship ...................................................................................................................... 35
2. Reinsurance ......................................................................................................................... 35
3. Impacts on Recovery Due to SBA ........................................................................................ 36
Chapter 5. Contractor Eligibility Requirements ................................................................................ 38
1. Required Certifications........................................................................................................ 38
2. Size Standards ..................................................................................................................... 39
3. Character of the Contractor ................................................................................................ 40
4. Types of Eligible Organizations and Entities ...................................................................... 42
5. Business Location and Resident Status ............................................................................. 43
6. Contractor Graduation ........................................................................................................ 44
7. Conflict of Interest ............................................................................................................... 44
8. Bankruptcies ........................................................................................................................ 46
9. Outstanding Taxes and Public Debts ................................................................................. 46
Chapter 6. Contract and Bond Eligibility Requirements .................................................................. 48
1. General Contract Eligibility ................................................................................................. 48
2. General Bond Eligibility ....................................................................................................... 48
3. Contracts requiring Maintenance Agreements or Stand-Alone Maintenance Bonds ..... 49
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4. Aggregation of Contract Amounts/Phased Projects ......................................................... 49
5. Indefinite Delivery and Definite/Indefinite Quantity Contract (IDIQ) ............................... 50
6. Multi-Year Contracts ............................................................................................................ 51
7. Design-Build Projects .......................................................................................................... 52
8. Timber Sale Bonds............................................................................................................... 52
9. Asbestos Abatement and Hazardous Waste Projects........................................................ 52
10. Underground Storage Tank Removal Projects ................................................................ 53
11. Dual/Multiple Obligee Bonds ............................................................................................ 53
12. Ineligible Bonds ................................................................................................................. 54
Chapter 7. Application Process for the Prior Approval Program ..................................................... 56
1. General Application Submission Process .......................................................................... 56
2. Submitting Schedule of Work in Process through eXtensible Business Reporting
Language (XBRL) ........................................................................................................... 56
3. Standard Application Package (Non-Quick Bond) ............................................................ 57
4. Quick Bond Application (The Quick Bond Application) .................................................... 65
5. SBA Application Review and Decision ................................................................................ 66
6. Bonding Lines ...................................................................................................................... 67
7. Increases, Decreases and Cancellations ............................................................................ 70
8. Change of Surety or Agent................................................................................................... 72
Chapter 8. Underwriting Considerations........................................................................................... 73
1. Surety Underwriting Requirements for SBA-Guaranteed Bonds ..................................... 73
2. Underwriting Guidelines for the Surety Bond Guarantee (SBG) Program ....................... 73
3. Types of Financial Statements Acceptable to SBA ............................................................ 80
4. Unacceptable Responses and Responses of Concern....................................................... 85
Chapter 9. Surety Oversight and Accountability............................................................................... 87
1. Monitoring and Reporting Measurements ......................................................................... 87
2. Possible SBA Actions ........................................................................................................... 88
3. SBA Process to Require Corrective Action.......................................................................... 88
Chapter 10. Office of Inspector General (OIG) Referrals ................................................................... 91
1. Matters That Should be Referred to OIG ............................................................................ 91
2. Referral process ................................................................................................................... 92
3. Information That Should be Included in the Referral........................................................ 92
4. Post-Referral Responsibility................................................................................................ 93
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Chapter 1. General Overview of the Surety Bond Guarantee Program
1. Introduction and Authority
This Standard Operating Procedure (SOP) provides guidelines for the management and
administration of the Surety Bond Guarantee (SBG) Program. It is for use by SBA personnel,
participating surety companies, agents and representatives, and all other interested parties. The
SBG Program is authorized by § 410 et seq. of the Small Business Investment Act of 1958, 15 USC
§694a et seq. Program regulations are in Chapter 13 of the Code of Federal Regulations (CFR),
Part 115.
2. Mission, Objective and Purpose
The mission of the SBG Program is to provide bonding assistance, in partnership with surety
companies, to qualified small businesses to bid on or enter contracts. By assisting these small
and emerging businesses, SBA’s objective is to enable them to eventually become bondable
without SBA’s assistance. A surety bond is an essential financial instrument issued by a Surety
and protects a public or private contract owner against all or part of the loss if a contractor
defaults. Not all private contracts require a bond but in the case of federal contracts The Miller
Act requires a surety bond on federal construction contracts exceeding $150,000.
3. Program Operation
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Under the SBG Program, SBA guarantees bonds that are issued by surety companies on behalf of
small contractors. If a default occurs, SBA reimburses the Surety a specified percentage of losses
and expenses incurred. The program is delivered through the Prior Approval and the Preferred
Surety Bond (PSB) programs. Under the Prior Approval Program, SBA approves each surety
bond guarantee. Under the PSB Program, Sureties are delegated the authority to issue, service,
and monitor bonds without SBA’s prior approval.
4. Program Administration
The Office of Surety Guarantees (OSG), located at SBA Headquarters, administers the SBG
Program. SBG Area Offices located in Denver, Seattle, and Washington, D.C., process guarantee
applications for the Prior Approval Program.
a. Responsibilities of Headquarters Staff
(1) Establishing plans, operating procedures, policies, and standards for the program.
(2) Developing legislative proposals about relevant program issues.
(3) Developing program goals and objectives.
(4) Reviewing and evaluating program effectiveness.
(5) Coordinating marketing efforts.
(6) Maintaining liaisons with surety companies, agents, industry associations, and
federal and state agencies.
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(7) Monitoring program allotments and budget appropriations.
(8) Processing surety applications for program participation and monitoring surety
program performance.
(9) Planning and conducting surety reviews, audits, and SBA reviews.
(10) Coordinating SBG Program activities with other SBA offices.
(11) Handling all claim and recovery activities for the Prior Approval and PSB programs.
(12) Administering the PSB Program.
b. Responsibilities of SBA Staff
(1) Processing and approving or declining applications for surety bond guarantees in the
Prior Approval Program.
(2) Conducting SBG activities in accordance with rules, regulations, SOPs, and notices.
(3) Performing marketing and outreach activities to promote and increase awareness of
the program and assisting district offices with their marketing efforts.
(4) Monitoring SBA’s allotment of guarantee authority.
(5) Maintaining liaisons with surety companies and agents, industry associations, and
federal and state agencies.
5. Surety Bond Guarantee Approval Authority in the Prior Approval Program
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a. Delegation of Authority for Approval of Surety Bond Guarantee Agreements
The Authorities Delegated to the AA/OCA are Redelegated to the Director for the Office of Surety
Bond Guarantees (D/OSG). The following SBA positions can approve surety bond guarantees in
the Prior Approval Program: Director, Supervisory Surety Bond Guarantee Specialist, Surety
Bond Guarantee Specialist within specified limits.
b. Rule of Two
The approval or declination of a surety bond guarantee application requires the combined
action of two SBA employees with delegated authority. An SBA professional must recommend
the action, and an approving official will render a final decision.
c. Oral Approvals
SBG personnel cannot provide oral approvals for surety bond guarantee agreements. They can
notify the surety of SBA’s decision if the SBA Form 990 has been approved electronically or
signed but has not been received by the surety. If there is a conflict between the oral advice and
the written/electronic decision, the latter prevails.
d. Defaults, Claims and Recoveries
All defaults, claims and recovery functions, including final action on claim payments or recovery
settlements, are handled by the Claims and Recovery Division. Please reference SOP 40 46 -
Claims and Recovery Program for additional information.
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Chapter 2. SBA’s Surety Bond Guarantee Agreement
1. Terms and Conditions of SBA’s Guarantee
a. Responsibilities of SBA
Under its agreement with a surety company, SBA will reimburse the Surety for a specified
percentage of losses and expenses incurred because of the contractor’s default or the
contractor’s failure to repay sums advanced by the Surety to avoid an Imminent Breach. SBA
may deny liability in whole or in part under the circumstances described in 13 CFR § 115.19. No
rights or benefits are granted to any other party under the guarantee and bond claimants do not
have a right of action against SBA.
b. Responsibilities of the Surety
(1) Underwriting
The Surety must use underwriting standards generally accepted in the surety industry and must
use the same principles and practices that it uses on bonds not backed by SBA.
(2) Servicing
The Surety must monitor the contractor’s progress on SBA-guaranteed bonded contracts and
request job status reports from obligees on final bonds. The Surety must maintain
documentation of the job status requests. SBA may request a status report from a Surety when
deemed necessary to monitor, service or approve surety bond guarantees.
(3) Claims, Salvage, and Recovery
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The Surety must follow the guidelines and procedures for claims, salvage and recovery are
found in SOP 50 46, Claims and Recovery Program.
2. Prior Approval Guarantee Agreement (SBA Forms 990)
The Prior Approval Surety Bond Guarantee Agreement is the written agreement between SBA
and a surety company under which SBA agrees to provide a guarantee to a surety company on a
specific bond. The form that is used for this agreement is SBA Form 990. SBA must approve the
SBG application referenced on the form before the Surety executes a bond unless the bond is
issued under an SBA bonding line.
3. Preferred Surety Bond (PSB) Agreement
The PSB Agreement is a written agreement between SBA and a surety company under which the
surety can issue, monitor, and service bonds without SBA’s prior approval. The agreement
specifies the expectations and understandings between the Surety and SBA and may be
modified with the agreement of both parties. The terms of this agreement may vary depending
on SBA’s experience with the surety. Guidelines and procedures for the management and
administration of the PSB Program is found in SOP 50 49, Preferred Surety Bond Agreement.
4. Maximum Contract Amount
At the time that the Surety executes the bond, the original contract amount or total work order
cannot exceed the amount listed in 13 CFR 115.10 (subject to adjustment for inflation in
accordance with 41 U.S.C. 1908 and approval by SBA).
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Federal contracts exceeding the amount listed in 13 CFR 115.10 – Applicable Statutory Limit (1),
must be accompanied by a contracting officer certification stating that SBA’s guarantee is
necessary as described in 13 CFR 115.12(e)(3). The certification must be either express mailed to
SBA, Office of Surety Guarantees, 409 Third Street SW, Washington, DC 20416 or sent by email to
suretybonds@sba.gov, and include the following additional information:
(1) Name, address, and telephone number of the small business;
(2) Offer or Contract number and brief description of the contract; and
(3) Estimated Contract value and date of anticipated award determination.
5. Guarantee Percentage – All Programs
a. SBA’s guarantee percentage is equal up to 90 percent if:
The total contract amount at the time of bond execution is $100,000 or less. If the contract
amount increases to more than $100,000 after the bond is executed, the guarantee percentage
decreases by one percentage point for each $5,000 increase or part thereof. The guarantee
percentage does not decrease below 80 percent. This provision does not apply to the small
business covered by (b) below. If the contract amount decreases to $100,000 or less after the
bond is executed, the guarantee percentage will increase to 90 percent. The surety must provide
SBA with evidence to support the decrease and other requested information or
The bond was issued on behalf of:
(1) an SBA 8(a) Certified Contractor according to 13 CFR Chapter 1, Part 124.
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(2) an SBA Certified HUB Zone Contractor according to 13 CFR Chapter 1, Part 126.
(3) a Veteran Owned Small Business according to 13 CFR Chapter 1, Part 115
(4) a Service-Disabled Veteran Owned Small Business according to 13 CFR Chapter 1,
Part 115.
(5) is a federally recognized Tribal Entity according to 13 CFR Chapter 1, Part 124.
(6) a socially and economically disadvantaged small business according to 13 CFR Part
124.103 and 124.104.
(7) a Small Disadvantaged Business according to 13 CFR 124.1001.
To be deemed “owned and controlled” by one or more individuals in any of these categories, the
firm must be 51 percent owned, and its daily business operations must be managed and
controlled by one or more individuals who fall within any of these categories. Please reference
Section 8(a) of the Small Business Act and 13 CFR, Part 124.103 for the complete list of socially
disadvantaged individuals.
Individuals who are members of designated socially disadvantaged groups may be economically
disadvantaged if the individuals meet the requirements outlined in 13 CFR Part 124.104 and any
verification mechanisms as deemed necessary by SBA. Any falsification of information,
withholding of pertinent information, or intentional neglect will result in the revocation of the 90
percent guarantee and all associated parties will be responsible for covering damages to SBA.
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For the purpose of any federal subcontracting program, unless specifically stated otherwise, the
phrase “socially and economically disadvantaged individuals “includes Indian tribes, ANCs,
CDCs, and NHOs. A firm may represent that it qualifies as an SDB for any federal subcontracting
program if it believes in good faith that it is owned and controlled by one or more socially and
economically disadvantaged individuals (see 13 CFR Part 124.10001)
b. SBA’s guarantee percentage may not exceed 80 percent for all other bonds.
c. Increase Above the Maximum Contract Amount.
If the contract amount increases above the statutory limit after the bond is executed, SBA’s
guarantee percentage is reduced. SBA’s share of the loss is the percentage of the increased
contract amount that the statutory limit represents, multiplied by the original guarantee
percentage. SBA’s revised guarantee percentage would be calculated as:
(statutory limit) / (SBG value) * (SBA guarantee percentage) = Reduced SBA guarantee percentage
The statutory limit of an SBG is based on the limit at the time of its origination, not the year of
the increased amount. If the statutory limit has increased since origination of the SBG, the SBG is
still subject to the original statutory limit without exception.
d. Guarantee Agreement Terms
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The terms and conditions of SBA’s bond guarantee agreement may vary from Surety to Surety,
depending on the small business and Surety’s program performance according to 13 CFR
115.12(d). SBA will determine if a reduced a guarantee percentage is appropriate based on
historical performance and other operational factors of the small business and Surety. The
reduction in guarantee percent may apply to a specific bond or all submission from a Surety.
6. Cost of SBA’s Guarantee
SBA does not charge fees for bid bond guarantees. Fees are charged for final bond guarantees
(performance, payment, maintenance, and ancillary bonds). SBA determines the fee and
publishes the percentages from time to time in the Federal Register.
a. Surety Fee
(1) Amount of Surety Fee.
SBA charges the Surety a percentage of the bond premium that the Surety charges the
contractor. The surety fee is rounded to the nearest dollar. (See the Federal Register for the most
recent update to SBA fee rates).
(2) Timeline for Payment
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A Prior Approval Surety must pay its fee to SBA within 60 calendar days after SBA approves the
Prior Approval Agreement. In the case of outstanding fees exceeding 60 calendar days, SBA will
issue a notification requesting remittance of all delinquent payments within 10 working days of
the notification. If the Surety fails to remit delinquent payments timely a conference will be
conducted by SBA and Surety to discuss a resolution. (see SOP 50 49 for The PSB Surety
submission requirements).
b. Contractor Fee and Costs
(1) Amount of Contractor Fee
SBA charges a rate per $1,000 of the contract amount. The contractor fee is rounded to the
nearest dollar. (See the Federal Register for the most recent update to SBA fee rates).
(2) Timeline for Payment
In the Prior Approval Program, the Guarantee Agreement (SBA Form 990) is conditionally
approved until the fee payment has been made through pay.gov. SBA’s approval of the
Guarantee Agreement is not deemed final until the contractor fee has been paid and SBA has
approved the bond guarantee.
(3) Unpaid Fees
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If the contractor’s fee is not paid, SBA will not issue the guarantee and additional guarantees on
behalf of the contractor. In addition, SBA is not liable under a guarantee for which the original
guarantee fee, or any additional fees due from change orders, has not been paid. The surety is
responsible for all SBA fees due to SBA.
(4) Amount of Bond Premium Charged by the Surety
The Surety must not charge the contractor a bond premium that is greater than that authorized
by the appropriate insurance department.
(5) Non-Premium Surety Charges to the Contractor
The Surety may charge the contractor non-premium charges if the Surety performs other
services for the contractor, the additional fee is permitted by State law, and the contractor
agrees to the fee. SBA does not require the contractor to purchase insurance or any other
services from the Surety, its affiliates, or its agents as a condition of an SBA bond guarantee but
the Surety may offer ancillary services if it is deemed necessary.
c. Fee Changes
(1) Notification of Increases and Decreases
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The Prior Approval Surety must request SBA’s approval for any increases or decreases in the
contract or bond amount that aggregate 25 percent or $500,000, whichever is less as soon as it is
aware of the change. If a change order increases the contract or bond amount by at least 25
percent or $500,000, the Surety must receive SBA’s approval before issuing a change rider,
consent of surety, or new bond. The Surety must submit a supplemental SBA Form 990 to SBA
for all changes meeting this threshold. SBA reserves the right to decline any increase that would,
in its estimation, expose SBA to a greater risk of claim.
(2) Additional Fees Due as a Result of Increases
If the contract or bond amount is increased, additional Surety and contractor fees are due. The
Surety must pay the prescribed percentage of the additional premium that it charges the
contractor, and the contractor must pay SBA the prescribed rate per $1,000 of the increase to
the contract amount.
In the Prior Approval Program, the Guarantee Agreement for the increase is conditionally
approved until the contractor fee payment has been made through Pay.gov. SBA’s approval of
the Guarantee Agreement for the increase is not deemed final until the contractor fee payment
has been paid and SBA approved the bond guarantee. The Prior Approval Surety must also remit
any additional Surety fees due within 60 calendar days of SBA’s approval of the Guarantee
Agreement.
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For both the Prior Approval Program and the PSB Program, additional fees are not due until the
increase in the contractor’s or surety’s fee equals or exceeds $250. (See the Federal Register for
the most recent update to SBA fee rates).
(3) Refunds Due as a Result of Decreases
If SBA is notified of a decrease in the contract or bond amount, it will refund proportionate
amount of the surety and contractor fees. The contractor fee refund is paid to the contractor,
not to the Surety or agent, and sent to the contractor’s mailing address on file. The surety fee
refund is paid to the surety company. When the Surety receives the refund from SBA, the Surety
must promptly refund a proportionate amount of the bond premium to the contractor. Refunds
to the Surety and contractor are not due until the decrease in the contractor’s or surety’s fee
equals or exceeds $250.
d. Pay.gov
Pay.gov is a financial management transaction portal managed by the U.S. Treasury’s Financial
Management Service that enables the public to electronically remit payments to federal
agencies 7 days a week, 24 hours a day. Contractor and Surety fees in the Prior Approval and PSB
programs must be paid through Pay.gov, at https://www.pay.gov, with a checking or savings
account or a credit card.
(1) Payment Programs
Contractors and surety companies must register and select from two payment options: one-time
payment or recurring payments.
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Payment Process for the Prior Approval Program
i. The application for a Final Bond is submitted electronically to SBA’s SBA.
ii. The agent signs the Guarantee Agreement (SBA Form 990 or 990A) and submits it
through Capital Access Financial Systems (eApps).
iii. SBA conditionally approves the application in the SBA system and an email is sent
to the agent advising that the contractor fee payment is due.
iv. The contractor fee is paid through Pay.gov and the agent notifies SBA through
Application Comments that the contractor fee has been paid and uploads the
pay.com receipt into the eApps system.
v. SBA associates the payment in the SBG system with the correct SBG number.
vi. SBA approves the application, and an approval email is sent to the agent of record.
SBA is not liable under the Guarantee Agreement until the contractor’s fee is paid.
The Surety fee is paid through Pay.gov no later than 60 days after the Guarantee Agreement is
approved by SBA.
(2) Payment Process for the PSB Program (see SOP 50 49)
i. The PSB Surety inputs the Final Bond into the PSB system.
ii. The contractor pays the fee through Pay.gov before the PSB Surety issues the bond.
iii. The PSB Surety pays the required surety fees through Pay.gov when it submits the
monthly bordereau to SBA that lists the Final Bonds for which the fees are owed.
(3) Forms of Refunds
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Any fee refunds due to the contractor are paid by check and any fee refunds due to the Surety
are paid by ACH. If the business mailing address on file for the contractor is incorrect, it will
result in an undelivered refund check. Please verify the business mailing address located on the
Business Information section of an application before submitting a change that could result in a
refund.
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Chapter 3. Surety Eligibility and Participation Requirements
1. Eligibility Criteria
a. Prior Approval and PSB Sureties.
(1) Treasury List
A surety company must be approved by the U.S. Treasury to issue bonds on federal procurement
contracts. Eligible sureties, co-sureties, and reinsurers are listed in Treasury Circular Number 570
“Companies Holding Certificates of Authority as Acceptable Sureties on Federal Bonds and as
Acceptable Reinsurance Companies” (Treasury List). The Treasury List is published annually and
shows each Surety’s underwriting limitation. When registered on the Treasury List, all federal
and non-federal contract bonds issued by the surety company are subject to the listed
underwriting limitation.
The surety underwriting limitations published in the Treasury List are on a per bond basis and
apply to all federal and non-federal bonds for which an SBA guarantee is requested in the SBG
Program. If the bond’s penal sum exceeds the Surety’s underwriting limitation, the excess must
be protected by either co-surety or reinsurance and reported to the U.S. Department of Treasury
prior to applying for SBA’s guarantee. SBA’s guarantee does not increase the Treasury
Department’s underwriting limitation for a Surety.
(2) Debarment
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The Surety must not be debarred, suspended, voluntarily excluded from, or declared ineligible
for participation in federal programs.
(3) Rating or Ranking by Surety Authority
SBA considers the Surety’s rating or ranking by recognized authorities when reviewing a Surety’s
application.
(4) Business Integrity
The Surety, including any officer, director, individual holding 20 percent or more of the Surety’s
voting securities, and any agents, underwriters, or any individual empowered to act on behalf of
the Surety (such individuals and entities separately and collectively referred to as “Person” for
purposes of this provision), shall possess good character and business integrity. The Person will
be deemed to lack good character and business integrity when:
i. The State or any authority regulating insurance revokes or cancels the license
required of such Person to engage in the surety business;
ii. The Person has been indicted or formally charged with a misdemeanor or felony
bearing on fitness to participate in the SBG Program. The Person may be
suspended pending disposition of the charge, and, upon conviction,
participation may be denied or terminated;
iii. The Person has suffered an adverse final civil judgment holding that a breach of
trust or violation of a law or regulation protecting the integrity of business
transactions or relationships has occurred; or
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iv. The Person has made a material misrepresentation or willfully false statement
when it presents oral or written information to SBA in connection with an
application for a surety bond guarantee or the presentation of a claim, or
committed a material breach of the Prior Approval or PSB Agreements or
committed a material violation of the regulation (as described in 13 CFR §
115.19).
b. Eligibility Requirements to become a PSB Surety Partner (also see SOP 50 49)
(1) The Surety must meet the Treasury List underwriting limitation requirements as
indicated in 13 CFR §115.60 (a)(1) SOP 50 49.
(2) The Surety must agree not to charge a bond premium in excess of that authorized by
the appropriate state insurance department, nor impose any non-premium fees
unless the fee is permitted by state law and approved by SBA.
(3) The premium income from contract bonds guaranteed by SBA can equal no more
than one-quarter of the Surety’s total contract bond premium income.
(4) The underwriting authority for SBA guaranteed bonds must be vested only in the
Surety’s salaried employees.
(5) The final settlement authority for claims must be vested only in the Surety’s salaried
employees.
2. Application Procedures
a. Application Package
A surety’s application for participation in the Surety Bond Guarantee Program must include the
following information:
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(1) Identification of the corporate entity that is applying for participation in the SBG
Program; names, titles, and telephone numbers of key executives; points of contact
responsible for the management and administration of its programs; and a company
organization chart;
(2) A summary statement describing any ongoing or planned mergers, acquisitions, or
other changes in organizational structure or key management positions that may
influence participation and performance in the program. Such statement includes
any revisions to the company organizational chart;
(3) A narrative summary that addresses the reasons for applying to participate in the
SBG Program and the projected annual SBA bond activity, including the projected
number of bonds and total dollar value for each of the first three years of program
participation;
(4) A summary of the applicant’s performance for each of the past three years that
includes the total numbers and dollar value of bonds issued, the total number and
dollar value of contract defaults, and the total dollar value of recoveries;
(5) A narrative summary of its underwriting standards, processes, and procedures,
including any applicable manuals; and
(6) A narrative summary of its standards, processes, and procedures for administering
and paying claims and submitting claims reimbursements requests to the Small
Business Administration, including any applicable manuals.
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b. Application Submission
The surety’s application should be submitted to the attention of the Director, Office of
Surety Guarantees (OSG), at suretybonds@sba.gov, or
U.S. Small Business Administration
Office of Surety Guarantees,
Suite 8600 409 Third Street, S.W.
Washington, D.C. 20416
3. Approval for Surety Participation
a. Notification
The Director/OSG will notify the Surety, in writing, of SBA’s approval for program participation.
For PSB Sureties, the letter will include a PSB Agreement, which must be signed and returned to
SBA by the PSB Surety. If the Surety is not approved for program participation, the Director/OSG
will notify the Surety, in writing, of the reasons for non-approval.
b. Required Information
The approved Surety must complete and immediately submit the ACH Vendor/Miscellaneous
Payment Enrollment Form (sba.gov). This form facilitates payment electronically to the Surety
for claim reimbursements or fee refunds.
c. Training
After the Surety is approved for program participation, OSG will provide training in program
regulations, procedures, and application and claims processes. The Surety’s underwriters and
claims administration staff are encouraged to attend this training.
d. Authorization for SBA’s Capital Access Financial System (CAFS)
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Prior Approval Sureties and their agents use the eApps system to submit bond guarantee
applications. SBA’s Capital Access Financial System (CAFS) is the single login point for all SBA
services. Prior Approval and PSB surety companies may authorize their staff to submit claims,
process fees and recoveries, and view or submit bond guarantee applications. Prior Approval
Sureties may also authorize agents to submit bond guarantee applications to SBA. To obtain an
account, an individual must be authorized by a surety company as follows:
(1) The surety company sends documentation to suretybonds@sba.gov for each
individual it is authorizing.
(2) OSG contacts the individual by email with instructions to complete CAFS
account setup.
4. Conditions of Surety Participation
a. Definition of Surety
The term “Surety” has the meaning set forth in 13 CFR § 115.10 and includes agents,
independent agents, underwriters, or any other companies or individuals who are empowered
to act on behalf of the Surety.
b. Regulatory Requirements
Participating Sureties must comply with SBA policies, procedures, and regulations. Program
regulations are contained in 13 CFR, Part 115. Applicable regulations for Prior Approval Sureties
are in Subparts A and B.
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c. State Licensing Requirements
A Surety must be licensed in the state or other area in which it provides an SBA-guaranteed bond
and where the contract will be performed. The term “other area” includes the Territories and
Possessions of the United States, the Commonwealth of Puerto Rico, and the District of
Columbia. The Surety must be in “good standing” with licensing authorities and State Insurance
Departments.
d. Generally Accepted Industry Practices and Procedures
A participating Surety must use standards generally accepted by the surety industry in
evaluating the credit, capacity, and character of a contractor unless SBA program requirements
provide otherwise. It must process and underwrite a bond application using the same standard
practices and procedures used on its non-SBA guaranteed bonds. The Surety must reasonably
expect the contractor to successfully complete the bonded contract.
e. Use of SBA Logo
SBA's surety and agent partners are not permitted to use the SBA logo in their emails or
marketing materials without SBA’s authorization. However, they may describe their relationship
with SBA in narrative form, i.e. "Surety Bonds Guaranteed by SBA".
f. Mergers and Acquisitions
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Mergers or acquisitions of surety partners must comply with 13 CFR 115.12 (f). Sureties must not
sell or otherwise transfer their SBA bond files or accounts, whether before or after a default by
the Principal has occurred, without the prior written approval of SBA. A violation of this
provision is grounds for termination from participation in the program. This provision does not
apply to the sale of an entire business division, subsidiary, or operation of the Surety. SBA bond
files and accounts sales to surety companies not affiliated with SBA’s Surety Bond Guarantee
Program is prohibited. SBA files and accounts must be owned and serviced by approved SBA
Surety partners regardless of their activity or inactivity in the program.
5. SBA Web Icon Guidelines
There is one Surety Partner web icon for use by SBA-partnered surety companies and one SBA
bond agent web icon provided for use by active SBA-authorized bond agents.
a. SBA web icon eligibility
(1) Active SBA status is required for utilization of SBA web icons. Active status refers to
those sureties and agents in good standing with SBA who submit at least one
approved bond guarantee application through the Program each federal fiscal year.
(2) SBA-partnered surety companies and SBA agents who are under a corrective action
plan are automatically disqualified from using an SBA web icon until all conditions
set by SBA for resumption of standard Program activity are satisfactorily met.
b. Terms of use
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(1) SBA’s web icons are only available as provided by SBA in electronic format. SBA’s
agent web icon must be downloaded from SBA surety agents | SBA Brand Guide. All
requests for SBA’s “Powered by SBA” web icon must be sent to the program office
for approval and issuance.
(2) SBA’s web icon may only be used to inform the public of the active participation in
the SBA’s Surety Bond Guarantee Program. It may not be used for any promotional/
advertising materials, be combined with other product offering, packaging,
manuals, documentation, or web pages other than as described here and must be
removed from all web pages upon withdrawal from participation in the SBG
Program.
(3) The web icon should be placed in a location and manner that does not promote or
appear to promote non-SBA products or services.
(4) The web icon must be accompanied by the following public statement: “Approved
to offer SBA guaranteed bonds through the SBA’s Surety Bond Guarantee
Program.”
(5) SBA’s web icon may only be used as a hyperlink if it links back to www.sba.gov/osg
or an internal icon user web page that only provides information about SBA’s
products and services.
(6) Icon users must not create their own versions of SBA web icons and may not edit or
otherwise modify the appearance of icons other than to proportionally resize them.
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(7) SBA web icons may be placed at the bottom of the icon user’s web page provided:
(8) It is not the most prominent element on the web page.
(9) It is no larger or smaller than the other icons on the web page and is not placed in
such a manner as to convey SBA’s endorsement of a non-SBA product, service, or
entity.
(10) Aside from proportional resizing of the image, its appearance has not been altered
or modified in any way, including being combined with other elements, graphics,
logos, icons, photos, slogans, numbers, design features, words, or symbols.
(11) It is not displayed on its side or inverted.
(12) Its text reads from left to right.
(13) Its colors and proportions are not altered.
(14) No part of the web icon has been changed or resized relative to the rest of the web
icon.
(15) There exists a minimum spacing of 25 pixels between each side of the web icon and
other textural or graphic elements on the web page.
(16) SBA’s web icon is not displayed on any website other than that of active SBA status
entities.
c. Permission, Review, and Oversight
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(1) Entities must seek written permission from SBA’s Office of Capital Access for any use
of SBA’s web icons not outlined in the above terms of use.
(2) Use of SBA’s web icon is prohibited in any manner that is in SBA’s sole discretion
misleading, unfair, defamatory, infringing, libelous, disparaging, obscene or
otherwise objectionable to SBA.
(3) Use of web icons will be reviewed periodically for compliance with all guidelines.
d. Upon request by SBA, an icon user will promptly remove all SBA web icons from its
website. SBA, at its sole discretion, may also request prompt correction for any
misuse as determined or directed by SBA to be non-compliant with SOPs 50 45, 90 78,
and these guidelines.
6. Electronic Form of Signature
SBA’s Surety Partners and small business concerns may utilize electronic signatures on SBA
Forms and other SBG documents requiring signatures in accordance with the performance
standards outlined herein. Electronic signatures meeting the requirements will be treated as
equivalent to handwritten signatures.
SBA’s policy for electronic signature utilization in this program is consistent with, and requires
Surety Partners to comply with, the current version of the National Institute of Standards and
Technology (NIST) SP 800-63 Digital Identity Guidelines. SBA requires compliance with Identity
Assurance Level 2 (IAL2), as described in the NIST Digital Identity Guidelines.
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a. Electronic Signature Eligible Documents
Unless otherwise prohibited by law, Surety Partners may use electronic signatures on the
documents referenced below (collectively referred to as “Eligible Documents”), provided that
the signatories comply with the standards outlined in this Notice. Electronic signatures cannot
be used on any document identified below if the recording office requires wet ink signatures.
(1) Office of Surety Guarantees, SBG application and claims documents;
(2) All other Federal Government documents [i.e., Documents and agreements related to
the guaranteed bond];
(3) Liquidation documents;
(4) Litigation documents, unless otherwise specified by a court order;
(5) Post-default action documents; and
(6) Surety on-boarding documents (i.e., Surety participation applications and
agreements), delegated authority documentation, targeted and full Surety review
documentation.)
The use of electronic signatures is voluntary. However, Surety Partners who choose to use
electronic signatures must fully comply with the standards outlined in this Notice and may be
held liable for failure to adhere to these standards. Electronic signatures may not be used for
transactions that require filing of security or other documents with a jurisdiction that does not
have electronic filing capabilities.
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b. Vendor/Technology Selection Requirements
A Surety Partner must ensure that any electronic signature technology vendor it uses:
(1) Complies with Section 101 of the Electronic Signatures in Global and National
Commerce (ESIGN) Act;
(2) Has the experience, capabilities, and expected longevity to meet all SBA electronic
signature requirements;
(3) Includes vendor agreements that contain express provisions that vendors will
comply with all applicable SBA requirements pertaining to this procedural notice;
(4) Includes vendor agreements language that would ensure that vendor
representatives will be available to provide testimony to support the United States
government in litigation regarding electronic signature data that will be introduced
in court;
(5) Meets disaster recovery and archiving requirements; and
(6) Has adequate quality control processes.
c. Surety Liability for Failure to Adhere to Prescribed Standards
OSG will review compliance with the ESIGN Act as well as standards in this Notice as
components of its oversight of Surety Partners.
d. Quality Control
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Surety Partners must ensure that their electronic signature policies and procedures meet all
requirements including their own oversight of the electronic signature process.
e. Record Retention
SBA’s record retention requirements are the same for both wet ink and electronic signatures. For
records signed electronically, the audit trail as well as any computer systems (including
hardware and software), controls, and documentation must be readily available for, and subject
to, SBA inspection for the same periods as records signed in wet ink. A Surety Partner’s system
must be able to reproduce electronic records as accurately as if they were paper when printed or
viewed. These records must be made available to SBA on request.
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Chapter 4. Co-Surety and Reinsurance
Generally, SBA will not guarantee a surety bond if the penal sum exceeds the surety’s
underwriting limitation in Treasury Circular 570, as amended. SBA will guarantee surety bonds
when there is a co-suretyship or reinsurance arrangement if the following conditions are met:
1. Co-Suretyship
The bond is issued with two or more SBA partner surety companies on Treasury Circular 570 that
directly participate in the bond and share liability. Both co-sureties must be licensed in the state
or other area where the SBA-guaranteed bond is provided and where the contract will be
performed. Each co-surety’s pro-rata portion of the penal sum must be within its underwriting
limitation. SBA must receive a copy of the bond within 15 days of its execution. Each co-surety
must be named on and sign the SBA Form 990, with the percentage or dollar limitation of their
respective exposures stated therein. Each attorney-in-fact signing the SBA Form 990 for a co-
surety must be authorized by the co-surety to do SBA business. The Surety assuming the
larger/largest share of the penal sum is the lead or primary Surety. After the SBA Form 990 is
signed, the lead or primary Surety is responsible for all communications between SBA and the
Sureties and for informing its co-surety partners of any communications with SBA.
2. Reinsurance
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If the Surety wishes to issue a bond covered by reinsurance for a prime contractor under the
Miller Act, where the U.S. Government is the obligee, the Surety must submit to SBA a copy of
the signed federal reinsurance form with the SBA Form 990, Surety Bond Guarantee Agreement.
The “Reinsurance Agreement for a Bond Statute Performance Bond” (SF 273) is used for Miller
Act bonds and the “Reinsurance Agreement in Favor or the United States” (SF 275) is used for all
other bonds. In either of these forms, the reinsurance company agrees to pay the United States
the amount of reinsurance that is necessary to pay for losses and expenses resulting from a
default not paid by the Surety. These forms also say that the United States may bring suit
against the reinsurer for the full amount of the loss, up to the amount of reinsurance. The
reinsuring company must be clearly identified on the SBA Form 990 but does not have to be
licensed in the state or other area where the SBA-guaranteed bond is provided and where the
contract will be performed.
3. Impacts on Recovery Due to SBA
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If a Surety has a reinsurance or coinsurance agreement (whether or not for a Miller Act Bond) or
any other arrangement to reduce its percentage of loss on an SBA-guaranteed bond, the Surety
must account to SBA for its recovery under the agreement. Before submitting a claim to SBA, the
Surety must reduce its loss (as defined in 13 CFR 115.17(b)) on the bond by the actual or
estimated recovery amount. If the Surety receives any additional recovery under the agreement
or arrangement that exceeds the estimated or prior recovery amount, it must pay SBA its pro-
rata share as required in 13 CFR 115.17(b)(2). If SBA has paid the Surety under its guarantee, any
future recovery that the Surety obtains from any source must first be applied to reimburse SBA
in full for its pro-rata share. Accordingly, the Surety cannot enter into an indemnity agreement to
recover its exposure on any SBA-guaranteed bond unless SBA receives its pro rata share on any
such recovery. The Surety must submit the recovery to SBA within 45 days of the Surety’s receipt
of the recovery.
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Chapter 5. Contractor Eligibility Requirements
1. Required Certifications
The contractor must provide specific certifications in its application for SBG assistance. The
contractor’s required certifications are found on SBA Form 994, “Application for Surety Bond
Guarantee Assistance”. The required certifications are:
a. Need for a Bond
A bond is expressly required by the bid solicitation or the original contract to bid on the contract
or to serve as a prime or subcontractor.
b. Availability of a Bond
A specific bond is not obtainable under reasonable terms and conditions without SBA’s
guarantee.
c. Partial Subcontract
The contractor must certify the percentage of work to be subcontracted. The contractor cannot
subcontract the full scope of the work under the contract. It must be fully responsible for the
oversight and management of the contract, including the work performed by any
subcontractors.
d. Debarment
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The contractor is not presently debarred, suspended, proposed for debarment, declared
ineligible, or voluntarily excluded from transactions with any federal department or agency,
under government-wide debarment and suspension rules. In addition to the company
certification, each proprietor, general partner, guarantor, limited partner, stockholder, or other
equity holder owning 20 percent or more of the small business must also provide such
certifications.
2. Size Standards
a. Size Standard Eligibility Rule
A contractor must be independently owned and operated and, together with its affiliates, must
qualify as a small business under 13 CFR, Part 121, and not exceed the size standard for the
North American Industrial Classification System (NAICS) code that corresponds to the primary
industry in which it, including its affiliates, is engaged. A joint venture of two or more business
concerns may submit an offer as a small business for a federal procurement, subcontract, or sale
so long as each concern is small under the size standard corresponding to the NAICS code
assigned to the contract. 13 CFR, Part 121, contains provisions related to the calculation of
receipts and the impact of affiliates on size determination.
(1) Service, Supply and Construction Industries
The company’s average annual receipts for the last three or five years, including affiliates, are
used to determine eligibility.
(2) Manufacturing Industries
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The average number of employees on payrolls for the last 24 months, including affiliates, is used
to determine eligibility.
b. Affiliates
13 CFR Part 121 provides a detailed explanation of the term “affiliate”. For SBA, determination of
affiliation is based the individual or entity’s ability to control to control the potential affiliate.
Whether the applicant qualifies as a small business is based on its revenue or number of
employees in combination with its affiliates.
(1) Mentor Protégé Programs
Joint venture entities derived from SBA’s Mentor Protégé Program are considered small
businesses, regardless of affiliate size, and are eligible for bond guarantee assistance. Program
underwriting standards are the same for these joint venture entities as they are for other small
business joint venture applicant entities.
c. Determination of Size Eligibility
For the Prior Approval Program, SBA personnel review the application package and make the
initial determination about size eligibility, using financial statements and tax returns.
Consolidated financial statements must include consolidating schedules separating the assets,
liabilities, revenues, and expenses of the applicant from those of its affiliates.
3. Character of the Contractor
The contractor must possess good character and reputation to be eligible for SBG assistance.
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a. Presumption of Good Character
The contractor possesses good character and reputation if each owner of 20 percent or more
equity, and each of its officers, directors, or general partners (the contractor and each such
owner, officer, director, or partner referred to as “Person(s)” for purposes of this paragraph)
possesses good character and reputation. Each of these Persons must submit a completed SBA
Form 994 including Individual Certifications on citizenship, character, and other matters with
the initial application, and with the first application submitted on or after October 1 of each year
following any changes in ownership of the small business, or if any of the answers change with
respect to any Person who previously answered these questions in connection with a prior
application. There must be a reasonable expectation that the contractor can successfully
perform the project. The contractor must possess the skills and abilities necessary for the
project and have experience in the type of work required by the contract.
b. Absence of Good Character
A Person’s good character and reputation is presumed absent according to 13 CFR 115.13(a)(2)
and when:
(1) The Person is currently incarcerated, serving a sentence of imprisonment imposed
upon adjudication of guilty, or under indictment for a felony;
(2) A final civil judgment has been entered stating that the Person committed a breach of
trust or has violated a law or regulation protecting the integrity of business
transactions or business relationships;
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(3) A regulatory authority has revoked, canceled, or suspended a Person’s license which
is necessary to perform the contract;
(4) The Person has obtained a bond guarantee by fraud or material misrepresentation;
or
(5) The Person fails to inform the Surety of unbonded contracts or of a contract bonded
by another Surety, as required by a bonding line commitment.
c. Illicit Activity
Firms that participate in illicit activities or are involved with otherwise legal products that will be
used in connection with an illicit activity are ineligible for SBG assistance.
4. Types of Eligible Organizations and Entities
Proprietorships, partnerships, corporations, associations, or joint ventures are eligible if they
meet other eligibility requirements. The business must be a for profit entity. A cooperative is
eligible if it carries on a business activity that produces monetary benefits for its members.
a. Tribal Entities and Native American Firms
Tribal obligees must provide either a waiver of sovereign immunity or dispute resolution
contract language acceptable to SBA. Waivers of sovereign immunity may be partial waivers
applicable to SBA guaranteed projects/bonds.
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Tribally owned small businesses must provide a waiver of sovereign immunity, business and
personal indemnity, and the personal indemnitor. The individual acting on behalf of the tribe
must demonstrate the legal authority to bind the tribal entity. Waivers of sovereign immunity
may be partial waivers applicable to SBA guaranteed projects/bonds.
5. Business Location and Resident Status
a. Business Location
The principal place of the contractor’s business must be in the United States, including its
territories and possessions. A firm located in a foreign country is not eligible for SBG assistance.
b. Commercial Activity Performed in a Foreign Country
A domestic firm that conducts its commercial activity partially or fully in a foreign country (i.e.
military bases, embassies) may be eligible for SBG assistance. This requires a detailed eligibility
review to determine if the firm will make a significant contribution to the American economy
through the payment of taxes or the use of American products, material, or labor.
If the bonded contract involves work in a foreign country, the application must be approved by
the Director/OSG. SBA may need to consult with the appropriate U.S. department or agency
concerning American business operations in the foreign country. The enforcement of the
General Indemnity Agreement in a foreign country must be strongly considered.
c. Businesses Owned by Non-Citizens
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A small business owned by an individual who is in the United States illegally is not eligible for
SBG assistance. Legal permanent residents and other non-citizens with active work visa status
are eligible for SBG assistance. The surety/agent must obtain evidence of legal status for all
applicants that are not citizens. Evidence includes a Social Security Number (SSN), Individual
Taxpayer Identification Number (ITIN), a Permanent Resident Card (Green Card), work visa or
other documentation of legal status from the United States Citizenship and Immigration
Services (USCIS).
6. Contractor Graduation
There is no time limit for a contractor’s participation in the SBG Program, but participating
Sureties should assist contractors in graduating from the program. Once a contractor can obtain
bonds under reasonable terms without an SBA guarantee, it is no longer eligible for SBG
assistance. If, in the future, the contractor is unable to obtain bonding, the contractor may
reapply to the SBG Program. A surety cannot apply for assistance for the sole purpose of
mitigating risk associated with the nature of a contract.
7. Conflict of Interest
The contractor is ineligible for SBG assistance if a conflict of interest or the appearance of a
conflict of interest exists between the contractor and its Surety.
a. Conflict of Interest
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A conflict of interest exists if the Surety or any of its Affiliates, or a close relative or member of the
household of that Surety or Affiliate owns, directly or indirectly, (ten percent or more), of the
contractor, including its Affiliates. Close relatives include father, mother, brother, sister, spouse,
lineal descendant, or in-law. This prohibition applies to individuals empowered to act on behalf
of a Surety and close relatives of those individuals and members of the individual’s household.
b. Possible Conflict of Interest
A possible conflict of interest may exist when:
(1) An SBA employee or member of an employee’s household or immediate family has
any financial interest in the contractor.
(2) A former SBA employee, separated for less than one year, has any financial interest in
the contractor or surety.
(3) A member of Congress or person within the member’s household is an officer,
director, or shareholder with ten percent or more interest in the contractor.
(4) A sole proprietor, officer, director, or shareholder with ten percent or more interest in
the contractor is:
(5) An appointed official or employee of the legislative or judicial branch of the federal
government;
(6) A member or employee of a Small Business Advisory Council;
(7) A SCORE volunteer, or a member of the household of the official or employee;
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(8) An individual currently involved in the SBDC Program (e.g., coordinator, instructor,
student, director); or
(9) A Government employee who is at the GS-13 level, or above, or who holds the
military rank of Major, Lieutenant Commander, or higher (including members of
his/her household) has a significant interest in the contractor. The applicant must
submit a written statement of no objection from the individual’s department,
agency, or branch of the military.
c. Resolution of Possible Conflict of Interest
If a possible conflict of interest exists, SBA must refer the case to SBA’s General Counsel, who has
the delegated authority to act as an assistant standard of conduct counselor. The general
counsel will either make a determination or refer it to the standards of conduct committee if
required. Based on the district counsel’s determination, appropriate action must be taken on
the SBG application.
8. Bankruptcies
Businesses and their owners, partners, or stockholders currently involved in a bankruptcy
proceeding are ineligible for an SBA guarantee.
9. Outstanding Taxes and Public Debts
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Applicants with outstanding tax debts or other public debts reported through the U. S.
Treasury’s Do Not Pay portal that have not been paid in full or resolved through a current
payment agreement are ineligible for an SBA guarantee. Evidence of full payment or of a
payment agreement and evidence that the payment agreement is current for the outstanding
debt must be included in the application package.
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Chapter 6. Contract and Bond Eligibility Requirements
1. General Contract Eligibility
SBA guarantees bonds for construction, supply, service, and manufacturing contracts. The
contract must have the following for eligibility:
a. Include a specific period of performance.
b. State a specified contract amount, which cannot exceed the statutory limit when the
surety executes the bonds.
c. Contain a requirement for bonds.
d. Preserve the surety’s option to either complete the contract or to pay the penal sum
of the bond in the event of default. The SBA will not guarantee a bond that restricts
the surety’s exercise of these options.
2. General Bond Eligibility
The following types of bonds are eligible for an SBA guarantee:
a. Bid Bond: guarantees the bidder will enter a contract and provide the required
performance/payment bonds if awarded the contract.
b. Performance Bond: guarantees the contract will be completed in accordance with its
terms and conditions.
c. Payment Bond: guarantees that suppliers and subcontractors will be paid.
d. Ancillary Bond: a bond incidental and essential to a contract for which SBA has
guaranteed a performance or payment bond, a maintenance bond for example.
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e. Stand-Alone Maintenance Bond: a maintenance bond where no performance or
payment bond was required.
3. Contracts requiring Maintenance Agreements or Stand-Alone Maintenance Bonds
a. Contracts with Maintenance Agreements
Contracts that contain maintenance agreements of two years or less covering defective
workmanship and materials are eligible. If the maintenance agreement exceeds two years or if
other than defective workmanship and materials are covered, SBA’s written approval is
necessary. To qualify, the agreement must be ancillary to the contract for which SBA is providing
a bond guarantee, it must be performed by the same contractor, and it must be customarily
required in the relevant trade or industry.
b. Stand-Alone Maintenance Bonds
Stand-alone maintenance bonds are eligible for an SBA bond guarantee. The maintenance
agreement must be in connection with a Contract for which a performance or payment bond
was not required and only covers defective workmanship or materials that are not covered by a
manufacturer's warranty. The maintenance term must cover a period of three years or less that
begins immediately after the Contract is complete and the bond must be executed prior to the
completion of the Contract. The bond must be issued on behalf of the same Principal that
completed the Contract. With SBA's prior written approval, the agreement may cover a period
longer than three years if such period is customarily required in the relevant trade or industry.
4. Aggregation of Contract Amounts/Phased Projects
a. Aggregation of Contract Amounts
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Multiple bond guarantee requests by one contractor on a single project must be aggregated and
must not exceed the statutory limit unless the contracts are to be performed in phases. A single
project exists if one contractor and its Affiliates have multiple contracts with one obligee for
performance at the same location, regardless of job title or the nature of the work to be
performed.
b. Properly Phased Projects
A properly phased project is divided into two or more phases that have separate and identifiable
contracts and bonds, and work on each contract is not being completed simultaneously. Each
phase must be completed, and work on the next phase is not begun until the preceding phase
has been completed and the bonds thereon released. An example of a properly phased project is
one where the contractor is the landscaping subcontractor on a two-building project that calls
for the first building to be completed before any work on the second building starts.
5. Indefinite Delivery and Definite/Indefinite Quantity Contract (IDIQ)
Indefinite Delivery and Indefinite Quantity Contracts are used when the exact quantity or
performance period is not known at the time of contract award. Orders are issued under each
type of contract. A “Delivery Order” contract is used for the delivery of supplies. A “Task Order”
contract is used for the delivery of services.
a. Definite Quantity Contracts
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This type of contract is used when the quantity of supplies or services is known at the time of
contract award, and the delivery schedule is established under individual orders issued against
the Definite Quantity Contract.
b. Indefinite Quantity Contract
This type of contract specifies both a minimum and maximum dollar value of supplies or
services that will be ordered, and at least the minimum dollar value that will be ordered
following contract award. The contract amount submitted to SBA is the price of the estimated
minimum quantity to be ordered under the contract.
c. Requirements Contract
Under this type of contract, an estimate of the total quantity to be ordered will be provided in
the contract solicitation. The contract amount is the price of the total estimated quantity to be
ordered under the contract.
6. Multi-Year Contracts
Annually renewable multi-year contracts are eligible for SBA’s guarantee if the total contract
amount, excluding unfunded or unpriced option years, does not exceed the statutory limit. An
annual bond is required unless the obligee is a federal agency. Each option year following the
initial contract year is treated as a separate obligation and requires the submission of a new
guarantee application. Liability cannot stack and bond form language must include a
cancellation clause.
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Multi-year contracts that do not annually renew are eligible for SBA’s guarantee on a case-by-
case basis. The contract term must be within a normal duration period for the project’s industry.
An explanation from the surety may be required during the application process.
7. Design-Build Projects
Design-build projects are eligible for an SBA guarantee. SBA requires evidence of design liability
insurance.
8. Timber Sale Bonds
SBA guarantees bonds for timber sales contracts administered by the U.S. Forest Service and
other public and private entities. These contracts require the contractor to pay the Obligee (i.e.
the Federal Government or other entity managing the forest) an agreed amount to harvest
lumber and other forest products. A bond is usually required to ensure compliance with the
contract terms and conditions associated with forest management, including the protection of
natural resources, erosion control, and road maintenance.
9. Asbestos Abatement and Hazardous Waste Projects
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Contracts that include asbestos abatement or removal of other hazardous wastes or other
regulated materials that are considered harmful to the environment are eligible for an SBA
guarantee if the contractor meets certain requirements and the Surety secures the necessary
documentation. The Surety must ensure the contractor has the appropriate training and
certifications for the project tasks as required by federal, state, and local regulations (e.g.
asbestos and lead paint certifications, HAZWOPER training), complies with all ordinances and
laws pertaining to the type of work, has adequate, specialized equipment available, has
obtained authorization for the transportation method and government-approved disposal site,
and has secured occurrence based pollution liability insurance in an amount appropriate to the
risk involved. SBA requires evidence of pollution liability insurance.
10. Underground Storage Tank Removal Projects
A contractor involved in underground storage tank (UST) removal projects must have a license
to remove tanks. If the project involves tank systems that will remain in operation, the
contractor must also be licensed in tank installation. Although project sites may be tested prior
to work commencement, contamination is rarely known until the project is well underway.
Since licensing guidelines vary by state, the Surety must check licensing laws prior to submitting
a contractor’s guarantee application to SBA.
11. Dual/Multiple Obligee Bonds
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Except in cases involving a federal department or agency, dual or multiple obligee bonds are not
eligible for an SBA guarantee unless the co-Obligee is bound by the contract to the same extent
as the original Obligee. If the Surety arranges for completion of the contract, the co-Obligee
must be bound to the Surety to the same extent as the original Obligee. The addition of Obligees
cannot increase the liability of the Surety beyond the contract amount. All applications for
dual/multiple Obligee bonds for non-federal contracts must include a rider that accomplishes
the same purpose. The rider must be on the Surety’s letterhead and be submitted with each
guarantee application that includes dual/multiple obligees.
12. Ineligible Bonds
Ineligible Contracts and Bonds
The following types of contracts and bonds are ineligible for an SBA guarantee:
a. Bonds at amounts exceeding the contract value.
b. Advance Payment Bonds
c. Bid Bonds where the project has already bid.
d. Completion Bonds
e. Contract that prohibits the Surety from performing the contract if default occurs
f. Financial Guarantee Bonds, except Timber Sales contracts
g. Lease Bonds (Gas, Oil, Coal, etc.)
h. License and Permit Bonds
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i. Reclamation Bonds
j. Release of Lien Bonds
k. Subdivision Bonds
l. Warranty of Fidelity
m. Warranty of Performance or Efficiency
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Chapter 7. Application Process for the Prior Approval Program
1. General Application Submission Process
The contractor must apply for a bond with an agent who represents a participating Surety,
providing all application information required by the Surety and SBA. The Surety conducts its
underwriting analysis, evaluating the character, capacity, and credit of the business. If the
Surety determines that it will issue a bond with SBA’s guarantee, it applies for SBA’s bond
guarantee on behalf of the contractor, including required SBA forms and underwriting
information. All applications are submitted to SBA electronically, using the electronic
application (eApps) system, by an individual (Attorney-in-Fact or Surety employee) authorized
by a participating Surety to submit applications and issue bonds. Documents are uploaded to
eApps to support the application as either Business Docs or Bond Docs. Documents generally
pertaining to the business, such as business financial statements, are uploaded to Business Docs
and documents pertaining to the bond guarantee application, such as SBA application forms
and contracts, are uploaded to Bond Docs. SBG Program underwriting staff execute the SBA
Form 990 - Surety Bond Guarantee Agreement form for each bond guarantee and deliver it to the
Surety to establish the guarantee. All associated and executed forms and documents are
retained by the Surety for retention in accordance with 13 CFR § 115.21(b).
2. Submitting Schedule of Work in Process through eXtensible Business Reporting
Language (XBRL)
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A Prior Approval Surety and agent will have the option to submit Work in Process information
required on SBA Form 994F using XBRL. The XBRL WIP report is an alternative to manual CAFS
entry of SBA Form 994F information. All the information contained in the XBRL WIP report is
identical to the information contained in the current SBA Form 994F; the only difference
between the two forms is the formatting. The XBRL WIP report functions as a computer-readable
spreadsheet specifically designed to be translated by CAFS. By using the XBRL WIP report, a
Surety Partner will not need to manually enter the information into CAFS. Surety Partners must
access XBRL’s conversion website at https://sba.xbrl.us/ to submit reports, report issues and
download submission instructions. SBA does not own and is not responsible for the XBRL WIP
submission website. Submitters should use at their own discretion and all issues must be
reported through the website.
3. Standard Application Package (Non-Quick Bond)
The application package consists of information completed by both the contractor and the
Surety, including required SBA forms described below, which can be printed from the eApps
system during the application submission process. The SBA forms are also available at
https://www.sba.gov/document.
a. Small Business SBA Forms
(1) SBA Form 994 – Application for Surety Bond Guarantee Assistance
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This form is the contractor’s application for surety bond guarantee assistance and is required for
all bid and final bond applications. It consists of 5 parts, which must be completed with the
initial submission, but not all parts require updating with each submission. Part I, Business
Information, and Part II, Management Information, are completed for the initial application and
to update previously submitted information. Part III, Contract Information, and Part IV,
Agreements, Certifications and Comments, must be completed for each application for a bid and
final bond. Part V, Individual Certifications on Citizenship and Character and Other Matters, and
includes summaries of various laws and executive orders, including those related to debarment.
The business and individual certifications required in Part V must be completed for each initial
application by all parties owning 20 percent or more of the small business and officers with
decision-making authority for the applicant entity, annually with the first application of the
federal fiscal year, and if there are any ownership changes. Subsequent applications require only
one Principal representing the small business to sign Part IV certifying that all information in the
form is true, correct, and complete to the best of their knowledge. The signed SBA Form 994
must be retained by the Surety or agent after uploading to Bond Docs in the PDF format.
Retention of SBA Form 994 on unsuccessful bids is not required.
(2) SBA Form 991 – Surety Bond Guarantee Agreement Addendum
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This form must be included in the application package when a Principal takes any action related
to the contract or bond that would have exposed its Surety to liability under applicable law had
a bond been Executed (or approved if the Surety is legally bound by such approval) at the time.
The “billed to date”, “paid to date”, and “waiver of lien” amounts must all agree, and the
principal must certify that all suppliers and/or subcontractors have been paid current as of the
principal’s signature date. The Obligee must certify that all payments due by the Principal under
the contract to present status have not been reported to the Obligee to be delinquent, under
investigation or in dispute, and that the job has been satisfactorily completed to present status.
The following documentation must be included with the SBA Form 991 and uploaded to Bond
Docs in eApps:
i. Evidence that the requirement for the bonds was contained in the original contract
at award.
ii. A statement explaining why the bonds were not obtained prior to commencement
of the work and why they are now being required.
iii. Copies of all lien waivers for all subcontractors and suppliers.
iv. A status report signed and dated by the Obligee within 30 days of the application’s
submission date.
(3) SBA From 994F – Scheduled of Work in Process (WIP)
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Information about all the contractor’s uncompleted work (i.e. backlog), both bonded and
unbonded, is contained on this form. This form, or an alternate form with the same information,
is included with the initial application and with every subsequent application where the
application submission date is more than 90 days from the WIP on file’s effective date. The
Surety/agent must verify the accuracy of all information on the WIP.
(4) SBA Form 413 – Personal Financial Statement
Each principal of the company, all persons certifying Part V of SBA Form 994, Individual
Certification on Citizenship and Character and Other Matters, and all persons who personally
indemnify on the GIA must complete an SBA Form 413 when submitting a non-Quick Bond
guarantee application. The Surety must enter the personal net worth of each Principal in eApps
annually. Each form must be retained by the agent in accordance with 13 CFR § 115.21(b).
b. Surety SBA Forms
The following SBA forms are submitted by the agent to SBA:
(1) SBA Form 990 – Surety Bond Guarantee Agreement
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This form is the legal agreement between SBA and the surety company under which SBA
guarantees an individual bond. No substitute form is acceptable to SBA and no employee of SBA
has authority to waive, change or alter the terms of this Agreement, unless such alterations are
separately attached, and both the SBA and Surety’s authorized representatives have signed and
dated their assent. SBA Form 990 is required for each application. The SBA Form 990 is
generated during the application process, signed by the Attorney-in-Fact, and uploaded to
eApps. SBA signs the form and uploads it into the bond guarantee application after making the
final decision.
(2) SBA Form 994B – Surety Bond Guarantee Underwriting Review
This form contains business and financial information. It also contains the request for an SBA
bonding line on an account. For non-bonding line purposes, it is completed electronically with
the initial application for the small business and must be collected with every update to the
contained business or financial information. The Surety retains this form with each update and
makes it available upon request by SBA. For bonding line purposes, the most recent version of
the form must be uploaded with every bonding line request.
(3) SBA Form 2461 – Quarterly Contract Completion Report
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The quarterly contract completion report (QCCR) is required by regulation 13 CFR 115.22. The
report notifies SBA of final bonds closed during the previous quarter. Surety companies
partnered with SBA must submit a QCCR within 45 days of each federal fiscal quarter’s end
(December 31, March 31, June 30, and September 30). The report is required during the period a
program partner has outstanding final bond guarantees with SBA. Remittance is still required on
a quarterly basis even when there are no completed contracts to report since submittal of the
report confirms no contracts were completed during that fiscal quarter. The report is also still
required from inactive program partners until all outstanding final bond guarantees have been
closed in CAFS.
Steps for QCCR Compliance:
i. If necessary, completed contracts are adjusted for final contract amounts in CAFS,
via the eApps or Preferred Surety systems, by the responsible user for regular
submission of changes.
ii. This process is completed via the program’s normal increase/decrease procedure.
iii. The surety closes all completed jobs for the quarter via the Bulk Bond Closeout
screen.
iv. The surety downloads, signs, and uploads the QCCR within the Surety Report
screen.
c. Other Information
(1) General Indemnity Agreement (GIA)
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An executed GIA on the Surety’s form is required prior to submission of an application for an SBA
guarantee. It must include a corporate signature, must be secured by such collateral as the
Surety or SBA finds appropriate and must include the personal indemnification of the
contractor, each holder of at least 20 percent ownership interest in the contractor, their spouses,
and officers with decision-making authority for the applicant entity. The GIA must reflect the
proper legal name of the small business and must be signed and dated prior to the submission
of any applications. A new GIA must be executed if the business name or corporate structure
changes, or if the contractor changes surety companies. GIA information is entered in eApps for
each applicant.
(2) Business Bank Line of Credit (BLOC)
Evidence of a bank line of credit, signed and dated by the bank, may be used to qualify a
contractor for SBG assistance. It should include the amount of the BLOC, the amount available
for use, any collateral provisions, and the expiration date. Business BLOC’s must be provided by
federally recognized lending institutions. Private equity and factoring firms are not acceptable.
(3) Reporting Requirements
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The agent must provide the small business’s financial information to SBA, including the three to
five most recent year-end financial statements to support the applicable size eligibility
determination and a six-month or later interim financial statement when applicable. All financial
statements must be entered and uploaded into eApps within 120 days of the statement date. All
applicants must submit financial statements in accordance with the quality and size
requirements. Federal tax returns may be substituted for year-end statements. All tax returns
must be signed or include evidence of electronic filing. Tax returns may not be substituted for a
current financial statement required for working capital calculations.
(4) Contract Size and Type of Financial Statement Depending on the size of the contract,
the financial statements must be of the following type:
i. Up to $2,000,000 – An internally prepared, computer-generated financial
statement is required for contracts up to $2,000,000. This is the lowest quality
financial statement accepted by SBA.
ii. More than $2,000,000 to $3,000,000 – A CPA-compiled or an In-House Plus year-
end financial statement is required for contracts more than $2,000,000 to
$3,000,000. An in-house plus financial statement is defined as a high quality,
computer generated financial statement. To qualify as in-house plus quality, a
financial statement must include aged schedules of accounts receivable and
accounts payable, current portion of long-term debt, and a correctly structured
balance sheet with no negative liabilities.
iii. More than $3,000,000 to $14,000,000 – A CPA-reviewed year-end financial
statement is required for contracts more than $3,000,000 to $14,000,000.
iv. Interim requirement: The six-month interim financial statement may be an
internally prepared financial statement or higher.
v. Case-based requirements: SBA may require higher financial statement quality
than outlined above due to case-based concerns.
(5) Contract and Bond Documents
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All final bond applications must include copies of the relevant parts of the contract and the bond
forms to be used on the project. The relevant parts of the contract include, but may not be
limited to, the statement of work, performance period, bond requirement, the contract amount,
any liquidated damages provisions, and the parties to the contract. These documents must be
uploaded into eApps.
4. Quick Bond Application (The Quick Bond Application)
Quick Bond Application (The Quick Bond Application) is an option used by the small business to
apply for SBG assistance not requiring a financial review. The Quick Bond option can be used if
the contract amount does not exceed $500,000. If the contract amount later increases above or
decreases below $500,000, SBA Form 990 will be used to submit the contract amount changes to
SBA. If a bid is revised to an amount above the $500,000 Quick Bond limit, SBA requires
cancellation of the approved Quick Bond guarantee and submission of a full bid application. A
successful bid with a contract amount exceeding the $500,000 Quick Bond limit requires
submission of a full final bond application.
a. Exclusions
The Quick Bond option cannot be used if:
(1) The principal has previously defaulted on any contract or has had any claims or
complaints filed against it with any court or administrative agency.
(2) The time for contract completion exceeds 12 months.
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(3) Work on the project has started.
(4) Liquidated damages exceed $2,500 per day.
(5) The Contract involves asbestos abatement, removal of hazardous waste or other
regulated materials that are considered harmful to the environment, or timber sales.
(6) The bond would be issued under a bonding line.
5. SBA Application Review and Decision
SBA reviews the application package, considering the underwriting factors discussed in this
SOP. The decision on the application requires the concurrence of two people referred to as the
Rule of Two.
One of the following actions will be taken with respect to the application:
a. Approve: SBA approves the application and agrees to guarantee the bond. If the
approval is for a final bond, the contractor and surety fees must be paid. Bid
applications may be conditionally approved for various reasons. Conditional
approvals will be limited, and condition(s) must be met prior to support of any
subsequent submissions.
b. Decline: SBA does not approve the application because the applicant is ineligible for
a guarantee or does not otherwise meet SBA requirements.
c. Return: The applicant appears to be eligible for a guarantee, but SBA returns the
application because it is incomplete, or a deficiency exists that was not corrected
within a reasonable timeframe.
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d. Withdraw: The agent requests that the application not be processed by SBA.
After the decision is entered into eApps, SBA completes, signs, and dates the SBA Form 990, and
makes the executed form accessible to the surety for retention in accordance with 13 CFR §
115.21(b). The executed form is also uploaded into the bond guarantee application. A separate
SBA Form 990 is required for each bid and final bond guarantee.
6. Bonding Lines
A bonding line is a commitment from SBA that allows an Attorney-in-Fact to issue bonds to a
qualified small business within authorized terms, limits, and conditions. The agent must notify
SBA immediately if there are any material changes to the small business or underwriting
information upon which the bonding line is based. SBA issues bonding lines with an expiration
at the end of each federal fiscal year, September 30, since the guarantee appropriation authority
granted to SBA is only valid in the federal fiscal year in which the bonding line was approved. To
continue the bonding line, it must be resubmitted for renewal in the following fiscal year.
a. Eligibility
A bonding line is based on SBA’s prior experience with the requesting agent/Surety and on a
satisfactory underwriting review of the small business. Newly formed businesses or new
applicants are eligible buy may undergo a high degree of examination to ensure that the small
business is eligible.
b. Limits and Conditions
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When applying for a bonding line, the Agent must recommend limits and conditions in
eAppshttps://www.sba.gov/document/sba-form-994b-surety-bond-guarantee-underwriting-
review which must be approved by SBA as part of a complete application. Bonding line authority
will be limited to the terms and conditions in the bonding line section of eApps. Entries must
include contractor’s full scope of potential work during the fiscal year. Generally, these
conditions include:
(1) A single contract dollar limitation.
(2) A total dollar amount and number limitation of all outstanding bids plus
uncompleted projects in process that the contractor can reasonably be expected to
perform at the same time. The work in process includes both bonded and unbonded
jobs.
(3) A specific geographical area for contract performance.
(4) A specific type of work that the contractor will perform.
(5) Removal of hazardous waste or other regulated materials that are considered
harmful to the environment, asbestos abatement, lead removal and tank
removal/replacement are eligible.
c. Application and Reporting Requirements
(1) Setting Up the Bonding Line
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After the first approved application on an account, a contractor is potentially eligible for a
bonding line with SBA. Bonding lines with SBA are based on the same criteria as a non-Quick
Bond application but applied to the applicant’s single and aggregate capacity. The applicant
completes, signs and dates SBA Form 994B to request a bonding line. The agent enters the
request for a bonding line into eApps (located at Bonds>eApps>Edit>[TIN entry]>Bonding Line in
CAFS) and uploads the executed SBA Form 994B to Business Docs. After SBA makes a decision on
the bonding line, an email is sent to the agent indicating the decision. The surety/agent retains
the executed form.
(2) Submitting an Application Under a Bonding Line
The Attorney-in-Fact signs and uploads SBA Form 990 to Bond Docs for each bond guarantee
application submitted under an approved SBA bonding line within 15 calendar days of bond
issuance. The contractor fee must be paid before SBA issues a final bond approval. SBA signs
and uploads the form in eApps and makes the original executed SBA Forms 990 and SBA form
994 accessible to the Surety for retention in accordance with https://www.ecfr.gov/current/title-
13/chapter-I/part-115. The surety fee for all final bond guarantees must be paid in accordance
with 13 CFR 115.32 and this SOP.
d. Bonding Line Exceptions
The contractor’s account should be managed within the established limits of the bonding line. If
an application exceeds the parameters of the bonding line, SBA will advise the agent to request
a new bonding line with different parameters, if the contractor qualifies.
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e. Cancellation of the Bonding Line
A bonding line may be cancelled at any time at the discretion of SBA or the Surety. The party
canceling the bonding line must provide written notification to the other party. SBA may cancel
the bonding line if the terms and conditions are exceeded, the financial condition of the small
business changes, the WIP schedule becomes past due, or the small business defaults on a
previous bond. All bonds issued under the bonding line prior to the cancellation date will be
guaranteed by SBA.
7. Increases, Decreases and Cancellations
a. Increases and Decreases
The Surety must request SBA’s prior approval whenever the original bond amount increases as a
result of a single change order of at least 25 percent or $500,000, whichever is less before issuing
any new bonds, change rider or surety consents. The Surety must notify SBA and receive the
approval of any increases or decreases to the contract or bond amount that aggregate 25
percent or $500,000 as soon as the surety acquires knowledge of the change. SBA Form 990
should also be used to notify SBA of the change.
(1) Bid Bond Increase
The Bid Bond increase must be submitted through eApps, and a new SBA Form 990 must be
signed by the agent and submitted to SBA. The increase is signed by SBA and the approved SBA
Form 990 is sent to the surety company for retention in accordance with 13 CFR § 115.21(b). A
copy of the signed form is uploaded into eApps by SBA.
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(2) Final Bond Increase
The Final Bond increase must be submitted through eApps, and an updated SBA Form 990 must
be uploaded to the application. An obligee status report on the project must be uploaded to
eApps showing satisfactory standing on the project. After SBA conditionally approves the
increase in eApps, an email is sent to the agent to advise that an additional contractor fee is due.
After SBA is notified that the fee has been paid and has received a new, signed SBA Form 990,
SBA reviews the applicant for suitability to perform the increased amount of work, approves the
increase, signs the form, and sends the executed to the Surety for retention in accordance with
13 CFR § 115.21(b). A copy of the signed form is retained in eApps by SBA. As a note, SBA is not
required to approve a bond increase. SBA’s support of an increase is attained by the applicant
meeting SBA’s underwriting requirements.
(3) Final Bond Decreases
The Final Bond decrease must be submitted through eApps, and an updated SBA Form 990 must
be uploaded to the application. SBA signs the form and sends the approval form to the Surety
for retention. A copy of the signed form is uploaded into the by SBA.
b. Cancellations
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The Surety must request final bond guarantee cancellations. Requests from agents will not be
accepted. Surety staff may email the appropriate Area Office Director a cancellation request with
the name of the applicant, the SBG number and the reason for the bond cancellation. SBA will
cancel the bond guarantee and the fees will be refunded. Contractor fees are returned by check
from the U.S. Treasury. Surety fee refunds will be included on the surety’s next monthly
statement.
8. Change of Surety or Agent
a. Change of Surety
If the small business changes surety companies, the principal and indemnitors must sign a
General Indemnity Agreement (GIA) with the new Surety. The new GIA information must be
entered into eApps before any new applications are entered.
b. Change of Agent
If the small business changes agents, the new agent must provide SBA with a signed
agent/broker of record letter from the small business. The letter must be dated and include the
address of the small business and be signed by a principal owner. The agent must provide SBA
with the small business’s EIN. SBA transfers the account in eApps to the new agent. The agent
uploads the agent of record letter into eApps.
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Chapter 8. Underwriting Considerations
1. Surety Underwriting Requirements for SBA-Guaranteed Bonds
A Surety is required to apply the same underwriting process and criteria to SBA guaranteed
bond applications as it applies to its other bond applications. Thorough credit, capacity and
character assessments must support each bond guarantee application and must be
documented by the Surety. According to § 411 of the Small Business Investment Act of 1958, 15
USC §°694b, a small business is eligible for an SBA bond guarantee provided it satisfies four
conditions: (1) the person who would be principal under the bond is a small business concern;
(2) the bond is required in order for such person to bid on a contract, or to serve as a prime
contractor or subcontractor thereon; (3) the small business is unable to obtain a bond with
reasonable terms without the SBA guarantee; and (4) there is a reasonable expectation that
such principal will perform the bonded contract, and the surety has determined the terms and
conditions are reasonable in the light of the risks involved. In underwriting an SBA guaranteed
bond, SBA also requires that the Surety comply with rules, principles and practices that are
promulgated from time to time by SBA. In this regard, the Surety must verify and ensure that all
bond guarantee applications and supporting data are accurate and complete, and updated, as
necessary, when changes occur.
2. Underwriting Guidelines for the Surety Bond Guarantee (SBG) Program
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A surety’s review of a surety bond guarantee application package should include assessments of
eligibility, feasibility, character, capacity, credit factors/special requirements, experience, and
indemnity. SBA will not approve a Prior Approval application for surety bond guarantee
assistance until SBA staff and the appropriate official with delegated authority have reviewed
the electronic application and concur that the application meets program requirements and has
acceptable risk factors. SBA’s first consideration is the Surety’s underwriting analysis and its
decision to approve is based upon the Surety’s recommendations and submitted information.
a. Eligibility
Eligibility determinations are based on statute, SBA rules and regulations, and the information in
the application package. The eligibility requirements that apply to the Surety, the contractor,
and the contract can be found in 13 CFR Part 115 and in other chapters of this SOP. Any eligibility
questions should be discussed with the Director/OSG or Area Supervisor/OSG before proceeding
with the application.
b. Feasibility
The information that the contractor provides in its application package, and the Surety’s
underwriting analysis of the case, must satisfy SBA that there is reasonable expectation that the
contractor will successfully complete the contract (containing the bond requirement) according
to its terms and conditions. The Surety and SBA must evaluate the various factors necessary for
successful completion of the contract by considering surety industry standards and principles.
c. Character Evaluation Process
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The completion of an SBA Form 994, Part V, Individual Certifications on Citizenship and
Character and Other Matters by each Subject Individual is required as part of the character
evaluation process on or after October 1 of each year. Every person completing an SBA Form 994
must answer each question fully giving details about any “yes” response. NOTE: A “yes” is
required even when the record is allegedly sealed, expunged or otherwise unavailable. (This
information is kept private and confidential.) There are no exceptions or waivers of this policy.
(1) If the SBA Form 994 is incomplete, it cannot be processed and will be returned to the
Surety/agent. The Surety/agent must submit a corrected SBA Form 994 before
processing continues.
(2) A Subject Individual may not reduce his or her ownership in a small business for the
purpose of avoiding completion of SBA Form 994. Anyone who would have been
considered a Subject Individual within six months prior to the application must
complete SBA Form 994. The only exception to this six-month rule is when a Subject
Individual completely divests his or her interest prior to the date of application.
Complete divestiture includes a divestiture of all ownership interest and severance
of any relationship with the small business (and any associated Eligible Passive
Company) in any capacity, including being an employee (paid or unpaid).
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(3) SBA Form 994 Part V must be dated, signed, and initialed no earlier than 90 days
before Applicant’s initial application for a bond guarantee and updated every federal
fiscal year. Agent/Surety must retain the original SBA Form 994 Part V and the
package for the life of all SBA bond guarantees plus three years beyond the date of
potential claims/subrogation/claims settlement.
(4) SBA cannot provide financial assistance to businesses with Subject Individuals who
are currently incarcerated, serving a sentence of imprisonment imposed upon
adjudication of guilty, or under indictment for a felony.
d. Capacity
The contractor’s capability to perform the contract is a primary underwriting concern.
(1) The Surety must certify that it reasonably expects the contractor to successfully
complete the contract. Based upon the information submitted by the contractor, the
Surety and SBA should consider the following factors when evaluating the
contractor’s capacity:
i. The contractor’s experience and reputation;
ii. The contractor’s present and projected financial condition;
iii. Reasonableness of the cost of the contract; and
iv. Feasibility of the successful completion of the contract.
(2) The Surety and SBA should consider the factors that are covered below and
throughout the remainder of this chapter.
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i. Management Control, Labor, and Logistics - Management controls should be
reviewed to ensure sufficiency, evaluate adequacy of labor and make/buy plan,
and other conditions that could impact contract performance.
ii. Geographical Area - The location, distance, and accessibility of the contract site
should be considered. The tendency toward geographical expansion by a
contractor is a prime factor in many surety losses. A firm can experience
extremely adverse effects outside of its local and familiar geographical area
due to unforeseen situations involving labor, politics, weather, laws, ground
conditions, etc. Surety and SBA staff should exercise extreme caution in
considering bond guarantees outside the contractor’s normal geographical
area.
iii. Adequacy of Bid - A contractor’s ability to estimate is a key factor in its ability to
succeed. Poor bid preparation and pricing leads to underbidding, which is a
frequent cause of contractor failure. It is important that the Surety and SBA
know the bid preparation process (e.g., performed by owner or estimator
depending on the level of estimating experience) and the bid spread. SBA
requires a justification and cost breakdown for bid spreads greater than 15
percent.
e. Credit Factors/Special Requirements
The Prior Approval Surety must provide sufficient information to SBA to permit an evaluation of
the financial condition of the firm, cash flow needs during the period of the contract (ability to
cope with the demands of the proposed contract as well as its other work outstanding), and the
availability of monies necessary to continue contract performance. SBA personnel should
evaluate the following factors and requirements.
(1) Evidence Of Bank Line of Credit - This includes the name of the contractor’s bank,
outstanding debt, amount of available credit, collateral endorsement requirements,
etc., as needed.
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(2) Financial Analysis – SBA personnel analyze the contractor’s financial statements and
the Surety’s underwriting of the contractor’s financial condition, as well as other
aspects of the case. The analysis is commensurate with the size, duration, and risks
of the proposed contract.
(3) Financial Statements – Agents submitting a bond guarantee application for a small
contractor must follow the requirements in Paragraph 6.2.c. of this SOP for
providing the contractor’s financial statements. These financial statements must be
current, in an acceptable format for analysis, and be high-quality statements,
especially when the requested guarantee amount is substantial or when there are
perceived problem areas.
f. Experience
(1) Based on the information provided in the application, SBA review encompasses the
contractor’s work history, type of jobs previously undertaken, largest previous jobs,
etc. It also includes the contractor’s years in business, its work specialty, and the
related prior experience of the firm’s principals. SBA personnel may request
reference letters to support first time applicants or larger projects. Bond guarantees
are generally limited to a size of twice the contractor’s largest successfully
completed project. SBA personnel documents the SBA case file for any exceptions.
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(2) Over-extension is taking on more work than one can finance and manage and is one
of the most common causes of contractor failure. SBA personnel carefully consider
the contractor’s total workload by reviewing the Work in Process provided through
SBA Form 994F or equivalent in eApps. Work in Process schedules must include all
jobs (bonded and unbonded), regardless of whether work has started, including all
awarded contracts.
g. Indemnity
Common law may give the Surety and SBA a right of action against a principal of the contractor
in the event of loss, but an indemnity agreement gives further protection against a wider range
of contingencies. The Surety must obtain a General Indemnity Agreement (GIA) that is signed by
the contractor and other indemnitors. If the contractor changes Sureties, a new GIA must be
executed with the new Surety. A new GIA must also be executed if the business name,
ownership, or corporate structure changes. SBA personnel do not base SBA’s guarantee solely
on the strength of the indemnity furnished.
(1) Usual Indemnitors: The Surety shall obtain the corporate indemnity of the applicant
and its affiliates and the personal indemnity of each holder of 20 percent or more
ownership interest of the small business. The personal indemnity of spouses is also
required if collective ownership exceeds 20 percent or more of the small business.
The Surety must be satisfied that the individual signing has the authority to sign the
GIA when taking corporate indemnity.
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(2) Other Indemnitors: The Surety or SBA may, at its discretion, require additional
indemnity, such as the personal indemnities of key personnel, or others who may act
officially on behalf of the applicant, regardless of stock ownership.
3. Types of Financial Statements Acceptable to SBA
a. Contract Size and Type of Financial Statement Depending on the size of the contract,
the financial statements must be of the following type:
(1) Up to $2,000,000 – An internally prepared, computer-generated financial statement
is required for contracts up to $2,000,000. This is the lowest quality financial
statement accepted by SBA.
(2) More than $2,000,000 to $3,000,000 – A CPA-compiled or an In-House Plus year-end
financial statement is required for contracts more than $2,000,000 to $3,000,000. An
inhouse plus financial statement is defined as a high quality, computer generated
financial statement. To qualify as in-house plus quality, a financial statement must
include aged schedules of accounts receivable and accounts payable, current
portion of long-term debt, and a correctly structured balance sheet with no negative
liabilities.
(3) More than $3,000,000 to $14,000,000 – A CPA-reviewed year-end financial
statement is required for contracts more than $3,000,000 to $14,000,000.
(4) Interim requirement: The six-month interim financial statement may be an
internally prepared financial statement or higher.
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(5) Case-based requirements: SBA may require higher financial statement quality than
outlined above due to case-based concerns.
b. Interim Financial Statements
Interim financial statements are required at six months from the contractor’s year-end and
submitted to SBA with the first application for a new applicant, if due, or within 120 days of the
most recent financial statement date for existing participants. Internally Prepared financial
statements are acceptable for all project sizes and contractors.
c. Tax Returns in Lieu of Financial Statements/Affiliate Tax Returns
All tax returns must be signed or include evidence of electronic filing. All tax returns must show
revenues for the year, which might be on Form 8825, Schedules C or E.
d. New Applicants
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Three full years of year-end financial statements, or tax returns if substituted for prior year
financials, must be entered so that all required financial statements are displayed on the
Business Financial Statement screen in eApps. If the contractor has been in business for less
than three years, financial statements must be provided for the number of years in business.
SBG staff complete the SBA adjustments for the most current financial statement and all
financial statements going forward. A current financial statement meeting OSG requirements
must be provided for all new accounts. Annual receipts of a concern which has been in business
for less than three complete fiscal years are annualized using the incomplete year’s financial
statement. Annualized calculation is the total receipts for the period the concern has been in
business divided by the number of weeks in business, multiplied by 52. Where a concern has
been in business three or more complete fiscal years but has a short year as one of the years
within its period of measurement, annual receipts mean the total receipts for the short year and
the two full fiscal years divided by the total number of weeks in the short year and the two full
fiscal years, multiplied by 52.
e. Financial Statement Exceptions:
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The current financial statement date, type and working capital amount in the Business Financial
Statements module must match the date, type and amount used in SBA’s analysis of total
available working capital included in underwriting remarks for each bond guarantee
application. Depending on the situation and underwriting evaluation, a one-time exception may
be provided for insufficient financial statement quality based on the job size. SBA monitor the
exception for compliance on future applications. Consideration of exceptions requires
supervisory approval.
f. Financial Statement Adjustments:
Adjustments should be made by SBA only to current assets, current liabilities and some long-
term liabilities as deemed necessary to achieve an accurate working capital analysis. All
adjustments to financial statements must be detailed in a remark at the bottom of the financial
statement screen. SBG staff must ensure that information is fully entered and verified on the
financial statement screen for both the balance sheet and income statement even if no
adjustments are made. If no adjustments are needed, it should be noted.
Routine adjustments made by SBAs are as follows:
(1) Asset Adjustments
i. Restricted Cash/CD Pledged as Security – SBA cannot consider as a current asset.
SBA personnel will reclassify as a long-term asset or discount fully if carried as a
current asset.
ii. Accounts Receivable – SBA discounts all receivables over 90 days unless
determined to be collectible or retainage.
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iii. Accounts Receivable Other – SBA discounts fully unless details are provided for
reconsideration.
iv. Employee, Affiliate & Shareholder Receivable/Note – SBA discounts fully.
v. Marketable Securities – SBA verifies value stability over consecutive months. If
confirmed, SBA discounts most recent face value of stocks and mutual funds by
70 percent and accept 100 percent face value of municipal bonds.
vi. Prepaid Expenses – SBA discounts fully.
vii. Deferred Taxes – SBA discounts fully.
viii. Tax Refund – SBA allows if financial statement is a CPA review or audit, and tax
refund is listed as an asset.
ix. Inventory – SBA discounts 50 percent for each account routinely and discounts fully
if inventory consists of real estate, livestock, other non-inventory assets or if the
figure remains the same between financial statements. 100 percent of inventory
may be allowed if inventory turns at least once fully during the year per CPA
notes to financial statements.
x. Other Current Assets – SBA discounts fully unless notes or identifying information
will allow inclusion based on GAAP current asset definition.
xi. Cash Value of Life Insurance – SBA allows as a current asset, reclassifying, if
necessary, if verified to be the actual cash value of a policy owned by the small
business and not the policy limit or owned personally.
xii. Goodwill/Intangible Assets – SBA discounts fully.
(2) Liability Adjustments
i. Bank Line of Credit – SBA reclassifies as a current liability if expiration date is
within 12 months of the financial statement date.
ii. Current Portion of Long-Term Debt – SBA calculates 25 percent of long-term debt
and reclassifies it as a current liability when no current portion of long-term
debt is provided in internal, in-house plus and CPA compiled financial
statements. SBA may reduce the reclassified amount if Surety provides
acceptable rationale for doing so.
iii. Shareholder/Owner Loan – SBA may reclassify from a current liability to a long-
term liability with a signed surety subordination agreement and copy of the
note.
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g. Personal Financial Statements:
Principals’ personal net worth from SBA Form 413 Personal Financial Statement, or equivalent,
must be entered in eApps Principals Financial Statement module with the initial application and
updated annually. The annual update is due 120 days from the last personal financial statement
date.
4. Unacceptable Responses and Responses of Concern
a. SBA Form 990
When a large bid spread exists between the contractor’s bid and the next higher bid, the
contractor must submit a written justification for the large bid spread and note any factors that
might mitigate the spread. SBA will consider the contractor’s justification and the Surety’s
justification for supporting the bond.
b. SBA Form 994 (Application for Surety Bond Assistance) and SBA Form 994B (Annual
Surety Review)
SBA personnel should be alert to the following “yes,” or “no,” responses on the following
questions on SBA forms and in eApps. Appropriate documentation must be obtained from the
Surety in these cases. A blank response to any item is unacceptable.
YES:
(1) Has contractor ever defaulted on any previous surety bonds? (SBA Form 994)
(2) Suppliers show past due 90 days or more.
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NO:
(1) Present project similar to previous work performed? (SBA Form 994)
(2) Receivables 90 days current?
(3) Payables 90 days current?
(4) Surety verified bank balance?
(5) Indemnities posted?
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Chapter 9. Surety Oversight and Accountability
SBA performs ongoing monitoring of Surety Bond Guarantee (SBG) program performance for all
participating Sureties to identify unacceptable risk profiles and, if appropriate, enforce SBG
program requirements through corrective actions (this is separate from SBA’s audit procedures).
SBA is responsible for ensuring that program utilization aligns with its mission. As outlined in 13
CFR § 115.21 and SOP 50 45, SBA reviews the adequacy and sufficiency of SBA-guaranteed surety
bonds supported by participating Sureties. The program shares this information with Surety
participants to increase transparency and to facilitate discussion and remediation of identified
concerns.
1. Monitoring and Reporting Measurements
SBA continually monitors Sureties’ respective performance with a look-back period of up to five
(5) fiscal years (dependent on length of participation). In general, SBA will provide Sureties a
copy of SBA’s findings at intervals and thresholds determined by SBA.
SBA considers several factors when evaluating participating Surety risk profiles. These include
(but are not limited to):
a. Portfolio performance relative to the overall program
b. Regulatory compliance
c. Standard operating procedure compliance
d. Form submission compliance
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e. Risk and claims management
f. Other qualitative factors as deemed necessary
2. Possible SBA Actions
When a Surety’s risk profile is determined to be unacceptable, as outlined in 13 CFR § 115.18 and
SOP 50 45, SBA may require corrective actions to address identified concerns. SBA may take
other actions including, but not limited to or in any particular order, any combination of the
following:
a. Require a Surety-submitted corrective actions plan;
b. Require additional supporting documentation for application submission, user-
specific or program-wide;
c. Further investigation, up to completion of an audit;
d. Reduce access to program guarantees;
e. Renegotiate SBA’s guarantee percentage;
f. Renegotiate SBA’s charge to the Surety for bonds executed thereafter; or
g. Suspend or terminate Surety’s program participation.
3. SBA Process to Require Corrective Action
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The decision to require corrective actions be taken by a Surety is made by the Director, Office of
Surety Guarantees (D/OSG). While a corrective action is pending, SBA may suspend program
participation until the Surety satisfactorily meets all conditions set by SBA for resumption of
support.
If notified of a required corrective action by SBA, a Surety must respond in writing according to
the response timeframe indicated by SBA. The response must include acknowledgement of the
required corrective action and a statement of intent to comply.
If prompted for a corrective action plan by SBA, a Surety must respond in writing within 45
business days of email receipt of such notice unless SBA notifies the Surety of a different
timeframe. The response must include a corrective action plan with details on actions the Surety
will take to address each finding and corrective action required.
A Surety must implement all corrective actions within 90 calendar days of the date of email
receipt of the notice unless SBA provides written notice of another timeframe. After receiving
Participant’s response, SBA generally will assess the plan and notify the Surety of whether its
plan/actions are satisfactory, not satisfactory, or SBA requires additional information.
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SBA may conduct a targeted review to confirm the Surety has implemented its corrective
action(s). The corrective action process is a key tool for bringing Sureties into compliance and
limiting agency and Surety risk. Decisions to suspend, terminate, deny participation in, or deny
reinstatement in the Surety Bond Guarantee program are made by the program’s Director. A
Surety may file a petition for review of suspensions and terminations with the SBA Office of
Hearings and Appeals (OHA) under 13 CFR 134.
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Chapter 10. Office of Inspector General (OIG) Referrals
1. Matters That Should be Referred to OIG
All SBA officials, Sureties and other program participants should be on the lookout for fraud and
must report any known or suspected irregularities involving SBA programs, program
participants, or personnel to the OIG. (13 CFR § 120.197) Whether acting alone or in collusion
with others, surety bond guarantee applicants, Sureties or other Obligors may intentionally
provide false information to SBA. Examples of irregularities that must be referred include:
a. Overstating income;
b. Understating or failing to disclose liabilities and debts;
c. Overvaluing collateral;
d. Failing to disclose incarceration or felony indictment status;
e. Making false claims of U.S. citizenship;
f. Failing to disclose true ownership of the business;
g. Using false Social Security numbers to conceal poor credit history;
h. Submitting altered tax returns;
i. Creating false work histories;
j. Actions by corrupt Surety agents who orchestrate, facilitate, or otherwise support
any of the illegal acts committed by SBG applicants; or
k. Misconduct by a Surety, Surety agent or representative, or SBA official such as the
solicitation, offer or acceptance of a bribe to approve a surety bond guarantee.
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2. Referral process
A referral to the OIG can be made by:
a. Calling the toll–free OIG Hotline at 1-800-767-0385, or
b. Completing the on-line OIG Complaint Submission Form at
https://www.sba.gov/about-sba/oversight-advocacy/office-inspector-general/office-
inspector-general-hotline and submitting the referral via the Internet, or
c. Mailing the referral to:
U.S. Small Business Administration
Office of Inspector General Investigations Division,
Mail Code 4113 409 Third Street, SW
Washington, DC 20416
3. Information That Should be Included in the Referral
An OIG referral should include as much information as possible in response to the following
questions:
a. Who is involved? (Name, occupation, address, contact information, etc.)
b. What occurred and how is SBA involved?
c. When and where did, or will, the activity take place?
d. Why does the activity appear to be illegal or improper?
e. What dollar amount is involved?
f. Who can confirm the allegation and how can that person be contacted?
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g. Who can provide more information?
When applicable, copies of supporting documentation to the questions above should be
submitted as part of the referral.
4. Post-Referral Responsibility
After referring a matter to the OIG, the person who made the referral must:
a. Report any new or additional information discovered about the matter to the OIG.
b. Not disclose or discuss the existence of the OIG referral or investigation to any person
other than SBA officials on a need-to-know basis.
c. Coordinate any activities related to the surety bond guarantee with the OIG in order
to avoid taking any action that could be detrimental to an investigation or
subsequent prosecution.
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