Small and Large Contractors are on an Even Playing Field for Obtaining Surety Bonding

Contractors applying for any public contract, as well as certain private contracts, are required to be sufficiently bonded, and the requirements to secure bonding are laborious and grueling.  However, due to the size of a contractor, or the fact that a contractor has not been in business long enough to instill confidence that it will perform the obligations under the bond, many small contractors will not be able to meet the requirements and obtain bonding under private surety companies.  With that, the Small Business Administration (SBA) was established to benefit these small contractors and give them an opportunity in the marketplace by creating a level playing field.

The SBA can guarantee surety bonds for smaller contractors who would not ordinarily qualify under private surety company qualifications, which gives sureties additional comfort that they will recover any potential losses under the bond. This can be very beneficial for small contractors hoping to get their names out in the marketplace and compete with larger contractors.

In order to qualify for SBA bonding, a contractor must meet the following criteria:

  1. The company must qualify as a small business, and the revenue threshold differs depending on the construction specialty performed by the contractor under the SBA size standards.  The size standards vary based on the type of contractor:
    • Companies in the business of constructing buildings and heavy/civil engineering construction, whose revenues do not exceed $36.5 million
    • Companies in the business of land subdivision and dredging/service cleanup activities whose revenues do not exceed $27.5 million
    • Specialty trade contractors whose revenues do not exceed $15 million
  2. Federal contracts pursued under the bond must not exceed $10 million, and non-Federal contracts must not exceed $6.5 million
  3. The company should maintain a line of credit with a reputable bank

The SBA uses the available balance on the line of credit as additional cash for the purposes of calculating working capital, as this is considered additional “cash” for this purpose. It can be very beneficial to the company to request an increase in its credit line in order to boost its working capital, which can result in greater bonding limits.

For questions or more information on the SBA or surety bonding requirements, please reach out to Sax’s Construction Practice.