Construction Contracts
SBA Cuts Surety Guarantee Fees, for One Year
The U.S. Small Business Administration will be trimming the fees it charges for its surety bond guarantees for one year, the first reduction in the charges in 12 years.
The cuts apply to guarantees approved from Oct. 1 through Sept. 30, 2019, the end of the coming fiscal year, SBA said in a Sept. 4 release.
The agency is cutting the fee it charges to small businesses to 20% of the bond premium, from the current 26%. It also is reducing its fee to contractors to $6.00 per thousand dollars of the contract amount, from $7.29 now.
Industry officials point out that that the coming reduction will bring the fees back to the levels in effect in 2006.
In announcing the 2006 fee boost, SBA said in a Federal Register notice that the hikes were needed to supplement reserves in the revolving fund that supports the guarantee program and to “offset unfunded program liabilities resulting from defaults under guaranteed bonds.”
Industry groups praised the new cuts. Mark McCallum, National Association of Surety Bond Producers chief executive officer, said via email, “We are very supportive of this temporary fee reduction and hope that there will be further consideration of making this fee reduction permanent.”
He said, “We believe that the fee reduction will stimulate greater participation in the Bond Guarantee Program by both contractors and by supporting surety companies.”
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McCallum also noted, “Many of the contractors seeking access to the SBA program are not well-capitalized, so any additional fees can be burdensome to their ability to pursue contract awards.”
The Surety and Fidelity Association of America also supports the lowered fees. The group noted in a statement on its web page that "the current structure can serve as a disincentive for participation in the [program] for both sureties and contractors.”
Peter C. Gibbs, acting director of SBA’s office of surety guarantees, said in a statement, “Reducing the…program fees will not only directly help small businesses, but also will incentivize surety companies and their agents to increase support for small businesses in the marketplace.”
SBA’s guarantees assist “small and emerging” contractors that are otherwise unable to get sureties in the private market. The agency guarantees contracts as large as $10 million. It has a “QuickApp” application for contracts valued at up to $400,000.
The agency says that so far in fiscal 2018, its guarantee program has backed 3,000 final bonds and $1.7 billion in bond contract amounts. The results represent increases over 2017 totals, it says.
