1. “We Open Doors to Bonding” for Small Business
2017 National 8(a) Regional Conference Alaska
Surety Bond Guarantee Program
Good afternoon, thank you for inviting me to provide information about our SBA Surety Bond Guarantee Program for your small businesses. My name is Linda Laws I’m the marketing and outreach specialist located in the Seattle Area Office. Our team in Seattle is led by our Area Director, Catharine Powers and two fulltime underwriters, Kevin Valdez and Dori Omon. We are all available to answer any questions you may have. There are also two other area office for the surety bond program one located in Denver and the other located in WA D.C. Each area office is staffed with an Area Director, underwriters and a marketing and outreach specialist to assist you.
Today I will be providing an overview of our program. I believe all participants will be receiving a copy of this presentation, however if you would like me to send you a copy please leave me your business card and I will be happy to send it to you.

2. The Small Business Struggle
Contract surety bonds are a form of credit.
Each bond constitutes a financial obligation for you and the surety.
Sureties underwrite each bond request for sufficient capital, credit and capacity at the time of application.
The initial bond application package includes financial statements, credit reports on majority owners, and information on available credit with banks and suppliers.
Small businesses may struggle to qualify for bonding due to limited capital, credit or capacity.
Small businesses are often required by municipalities to secure license and permit bonds in order to perform work within their jurisdiction.
License and permit bonds are typically simple to qualify for and secure from any local bonding agent.
Contract bonding is a different form of bonding than license and permit bonding, requiring demonstration of good character, experience in the field, business management skills, sufficient capital, and a strong financial presentation. Establishing contract bonding is similar to securing a loan or other form of credit, and small businesses sometimes struggle to meet the requirements necessary to qualify.
Having contract bonding in place helps to pre-qualify your small business to project owners, assuring them that your firm is the best option for their job, and that you will successfully complete their project on schedule, according to the specifications, with no liens or unpaid bills, or the surety will step in to remedy issues to make the obligee whole in connection with the terms of the bonds issued.
Bonded work can be a new and lucrative revenue stream for your small business.

3. The SBA Advantage!
Available balance on business bank line of credit counted as additional available working capital!
Available Working Capital + Available BLOC = More Bonding Capacity
Total bonding capacity typically double that of traditional surety!
Exceptions to financial statement requirements available!
SBA accepts financial statements based on contract amount
SBA’s bond guarantee provides you with several advantages, whether you are interested in qualifying for contract bonding or increasing your current bonding capacity.
A working capital bank line of credit is beneficial in the traditional contractor-surety relationship, but takes on more significance in SBA’s Surety Bond Guarantee Program.
SBA counts the available balance on the bank line of credit as additional available working capital for your small business, allowing you to qualify for bonding or increase your bonding capacity with the bank line providing you with additional capital.
SBA’s working capital requirements for small businesses are typically half that of traditional sureties, often allowing small businesses to qualify for twice as much bonding capacity as would be provided by the standard surety market.
SBA also provides opportunities for your firm to secure bonding for larger projects where your financial statement presentation may not meet that of traditional surety requirements, giving your firm the opportunity to perform the contract and secure the appropriate financial statement for future projects of that magnitude.

4. project owner who contracts with you.
Common Surety Terms
Principal:
You, the small business.
Agent:
representative of the Surety with power of attorney to issue bonds Your primary relationship is with the agent.
Obligee:
project owner who contracts with you.
Surety (SBA Partner):
corporate entity issuing bonds and legally responsible for paying claims in the event of default.
Common terms specific to the surety industry that you should be familiar with are:
The Principal is you, the small business.
The Agent is the legal representative of the Surety company with power of attorney to issue bonds on the surety’s behalf.
Your primary relationship is with the Agent.
If you have questions about your bonding capacity and how to increase it, need a referral to a construction CPA, etc., your agent is your front line contact, advocate, and advisor.
The Surety is the corporate entity issuing your bonds and legally responsible for paying claims in the event of a default.
The Obligee is the project owner and beneficiary of the bonds.

5. Principal/ Small Business Obligee/ Project Owner
What is a Surety Bond?
Use bonds instead of collateral whenever possible. Bonds conserve your working capital and help to provide you with some protection from fraudulent claims.
Principal/ Small Business
Surety Company
Obligee/ Project Owner
A surety bond is a three-party agreement between you, the Surety issuing your bonds, and the Obligee, who is the beneficiary of the bonds.
SBA encourages you to use bonds in lieu of any form of cash collateral whenever possible.
Substituting a performance bond for cash collateral allows you to retain that cash, to have it available for your day to day operations, rather than transferring it to the project owner, and gives you and your Obligees the added benefit of a corporate entity on your side to assist in resolving any problems on your bonded projects.
Three Party Agreement

6. Contract Bonds & What They Do
A Bid Bond guarantees that you will supply the required performance and payment bonds to secure the contract on award.
A Performance Bond guarantees that you will successfully complete the project in accordance with contract terms and conditions.
A Payment Bond guarantees that you will pay all subcontractors and labor and material suppliers for their work on the job.
A Maintenance Bond guarantees that you will remedy any defects in workmanship or materials within a specified time period following job completion, usually one to two years.
There are four types of contract surety bonds and SBA can guarantee them all.
A bid bond applies when you are bidding on a project and it assures the project owner that you will provide the required combination of performance, payment, and maintenance bonds to secure the contract upon award.
The remaining three bonds apply in various combinations once the contract has been awarded.
A performance bond guarantees that you will complete the project in accordance with its terms and conditions.
A payment bond guarantees that you will pay your subcontractors and labor and material suppliers for their work on the project.
A maintenance bond guarantees that you will remedy any defects in workmanship and materials on the project within a specific time period after its completion, usually one to two years.

7. Why are Surety Bonds Required?
To ensure that contracts are properly completed, protecting the Obligee, subcontractors, and labor and material suppliers
Federal Government Construction contracts greater than $150,000 under provisions of the Miller Act Requirements vary on non-construction contracts
State, County & Local Governments Similar to federal, but with differing limits, referred to as “Little Miller Acts”
Private Sector Many private sector Obligees require surety bonds
Bond requirements vary, so check your project specifications!
Contract bonds are required by obligees to ensure that their projects are successfully completed with no liens against the project.
Contract bond requirements are project specific and established by the project owner based on federal, state, and local laws or the obligee’s own internal guidelines, and outlined in the specifications for each project.
Since bond requirements vary tremendously it is vital that you check the specifications on each of your projects for bond requirements, which are typically found in the same area of the project conditions as the insurance requirements. This is true for all obligees.

8. Pre-Qualification & Bonding Capacity
Becoming bondable is similar to the process of obtaining bank credit setting up initial bonding with a surety agent may take a few weeks
Pre-qualifying means knowing what your bonding capacity will be before bidding or negotiating
Use to obtain bonding capacity without a specific bond application
Ask your agent for your capacity!
Know Your Bonding Capacity
Single contract limit (ex. $500,000)
Total aggregate capacity – bonded & unbonded (ex. $6,000,000)
Typical geographical work area
It may take several weeks to establish first-time bonding capability, but it can also be done more quickly if needed.
You can apply for bonding on a specific project or you can pre-qualify for bonding so that you can determine your available bonding capacity, the amount of bonding that the surety will provide to your firm.
However you go about it, be sure to ask your agent for your bonding capacity so that you know what sizes of bonded projects you can pursue.
There are two main components of your bonding capacity with which you must be familiar for your own success.
Your single contract limit is the largest single contract size your surety will bond for you.
If your surety has established this limit at $500,000, you wouldn’t want to bid on a $1 million bonded project knowing that your surety is unwilling to bond your firm at that level.
Your total aggregate capacity is the total dollar value of work on hand/work in process that your surety will allow you to have on hand at any one time and it includes both your bonded and unbonded work. Sureties will deduct your current cost to complete from your total aggregate capacity in determining how much capacity remains for your use.

9. Surety’s Underwriting Focus
Technical & Managerial Ability
Past experience demonstrates ability to perform future projects
Largest project Surety will bond is about two times largest successfully completed job
Management controls & accounting
Financial Statements
Working capital, net worth, debt to equity ratio, profitability
Quality financial statements
CPA prepared financials typically required for $1 million & larger jobs
Credit Resources
Fair or better personal credit history
Available credit with banks & suppliers
Sureties will focus their underwriting attention on three main areas of qualification when considering providing contract bonding for your firm.
First, the surety will focus on your technical and managerial ability, and character qualifications.
This includes a review of your past projects and information about internal controls such as job cost records, key personnel, internal accounting staff, etc.
Firms can typically qualify for a single contract limit of approximately two times the largest successfully completed project to date.
Total aggregate capacity is typically established based on the capital available to your firm from the next area of review – your financial statements.
When evaluating financial statements, sureties will consider previous project profitability and overall business profitability as well as the quality of your financial statement presentation. CPA-prepared financial statements are typically required to obtain bonding on project of $1 million or more in size.
Lastly, sureties will focus on the personal credit histories of the owners of your company and any credit available from suppliers or banks.
A revolving bank line of credit can be a real asset to your small business when participating in SBA’s Surety Bond Guarantee Program since SBA considers the available balance as additional working capital available to your firm to help you qualify for higher levels of bonding capacity.

10. Working Capital = Bonding Capacity
Measures your business’s ability to meet current and future financial obligations
SBA counts the available balance on bank lines of credit as additional working capital. This SBA advantage increases your bonding capacity!
Calculated from your balance sheet:
Cash + A/R
- Current liabilities
Available working capital
Available working capital + available BLOC X 20 = estimated bonding capacity with SBA bond guarantees
Available working capital X 10 = estimated bonding capacity without SBA
Working capital is a function of your potential bonding capacity because it measures your business’s ability to meet its current and future financial obligations.
You can calculate your estimated working capital from your balance sheet by using the formula cash + plus accounts receivable - current liabilities.
This will give you a conservative idea of your available working capital for bonding purposes.
In a traditional, non-SBA bonding relationship, a surety will typically provide total bonding capacity of about 10 times the available working capital from your balance sheet.
With SBA support, however, the working capital from your balance sheet is supplemented with any amount available on your revolving, working capital bank line of credit to increase the total working capital available to your firm in establishing bonding capacity.
In addition, with SBA support your business can typically qualify for bonding capacity that is about 20 times your available working capital because SBA’s capital requirements are about half that of traditional surety.
These are two of the biggest advantages of obtaining SBA bond guarantees available through no other bonding programs currently.

11. Maximize Your Surety Credit!
Increase working capital
Increase net worth
Decrease Debt/Net Worth Ratio
Retain Profits and Build Up Your Balance Sheet
Better Financials = More Bonding Capacity
Internal – Qualify for jobs up to $500,000
CPA Compilation – Qualify for jobs up to $1 Million
CPA Review – Qualify for jobs over $1 Million
CPA Audit – Typically only required from large businesses
It’s an investment in your business!
Prepare Quality Financial Statements
There are some ways that you can maximize your bonding capacity.
Retaining profits within your company, increasing your working capital by building up your cash reserves and paying down your current liabilities, and improving your net worth will allow you to qualify for higher bonding limits.
Preparing quality financial statements is also an important part of the bonding process.
Better financials = more bonding capacity.
CPAs prepare three different levels of financial statements: compilations, reviews, and audits.
Sureties will typically consider internally-prepared year-end financial statements for bonding on jobs up to $500,000.
Bonding on projects from $500,000 up to $1 million typically requires a CPA compiled year-end financial statement.
Bonding on projects over $1 million typically requires a CPA reviewed year-end financial statement.
CPA audited financial statements are typically only required of large businesses or for projects over $6.5 million due to their high cost.
SBA can help you qualify for a larger project if your current financial presentation does not meet these requirements, giving you the time to upgrade your financial statement to qualify for additional projects of that magnitude.

12. SBA Surety Bond Guarantee Program
SBA’s guarantee to the surety allows small businesses to obtain bid, performance, payment & maintenance bonds not available elsewhere with reasonable terms
SBA assists construction, service, supply & manufacturing firms, including:
Start-ups & firms in business less than 3 years
Firms with limited financial resources
Firms with internal financial statements
Firms with credit issues
Firms wishing to increase largest job size
Firms wishing to increase current bond limits
SBA Surety Bond Guarantee Program
SBA assists many different types of small businesses through the Surety Bond Guarantee Program.
Some of the types of small businesses that come to SBA for assistance with bonding are those with a limited job performance history, limited or insufficient capital, credit issues, and those wishing to make the leap to larger project sizes or increased bonding capacity limits.
SBA guarantees 70% - 90% of each bond based on the demographics of your business.

13. Eligibility - Step One: Size
Business, including affiliates and subsidiaries, must be small
See for size standards by NAICS code
Construction, Service & Supply Firms
Based on average annual revenues for the last three fiscal years:
$7.5 Million limit for some services such as landscaping (561730)
$15 Million limit for most specialty trades such as electrical (238210)
$36.5 Million limit for most heavy construction such as highway, street and bridge (237310)
Manufacturing Firms
Based on number of employees:
500 Employee limit for most such as ornamental metal work (332323)
The first step is to determine if the business is eligible for an SBA guaranteed bond. The business, including affiliates and subsidiaries must be considered small based on the primary industry it and the affiliates are engaged in. This is determined by the NAICS code (North American Industry Classification System.) qualifying for SBA’s Surety Bond Guarantee Program is determining if SBA considers your business to be small.
This is based on average annual revenues over the last three years for contracting firms and number of employees for manufacturers.
Here are some examples: For construction, Service, Cupply firms size is typically based on the average annual revenues for the last three fiscal years. A few examples 7.5 million limit for some service such as landscaping ; $15 million limit for most specialty trades such as electrical and $36million limit for most heavy construction.
You can locate your specific size standard by NAICS code at or your agent can qualify you during the initial application process.

14. Eligibility – Step Two: Certifications
Contract must require a bid, performance or payment bond
Business must be a U.S. entity organized for profit
Principals must be U.S. citizens or legal permanent residents
Business and Principals must be eligible to do business with the federal government (not debarred)
Business and Principals must not be involved in a current bankruptcy proceeding
SBA eligible immediately after discharge – check with your agent for surety’s requirements
Business and Principals must be current on all taxes and repayment agreements
Other qualification requirements include:
A specific requirement for a bond;
Being a for-profit US entity with legal US owners;
Being eligible to work with the federal government;
Not involved in a bankruptcy; and
Current on your taxes.
Small businesses don’t have to have been denied bonding to qualify for an SBA bond guarantee. They simply must need a bid, performance or payment bond and be unable to obtain it elsewhere with reasonable terms.
You are SBA eligible immediately after the bankruptcy judge has issued a discharge order in a bankruptcy proceeding, but many sureties require an established history of on time payments following a bankruptcy so be sure to disclose your situation to your agent when you begin the application process.
You can be eligible for SBA support even with prior past due taxes as long as you have entered into an approved repayment agreement with the taxing authority and are current on the payments. This is another situation you should make your agent aware of during the application process.

15. Does Your Contract Qualify?
QuickApp for Jobs Up to $250,000
Two Page Application
Decisions Within Hours
No Financial Statements Required
Up to $6.5 Million
Any Obligee Type – Federal, State, Local, Private & GC
Up to $10 Million on Federal Prime Contracts
with Contracting Officer Certification to SBA HQ
The next step in the process is determining if your contract qualifies for an SBA guarantee.
The QuickApp is great for first time applicants because it does not require the submission of financial statements and other documents typically required to qualify for bonding.
SBA’s partner sureties typically underwrite the QuickApp based on the business owners’ credit.
The QuickApp is designed for small, simple projects, so ask your agent about it if you’re interested.
Beyond the QuickApp, SBA can guarantee any contract type up to $6.5 million in size and up to $10 million on a direct Federal prime award.
SBA does not just guarantee bonds on federal contracts, but on federal, state, local, and private contracts all the way up to $6.5 million in size.

16. What Do I Need to Apply? Business Financial Statements
Last three fiscal year-ends
6 month interim
Personal Financial Statements
Principals and spouses
Bank Reference Letter
Bank line of credit
Authorized banks & credit unions
SBA Form Statement of Personal History
Once, unless ownership changes
SBA Form Application for Surety Bond Guarantee Assistance
Each bond guarantee request
Additional information may be required based on individual circumstances
Unless you are interested in bonding small projects under the QuickApp, you should be prepared to provide the following information to qualify for bonding initially:
Business financial statements for your last three fiscal year ends unless you haven’t been in business that long
A six-month interim financial statement if you are more than six months into your current fiscal year
Personal financial statements on all company owners; and
A reference letter from your bank outlining any available lines of credit, which is especially important in increasing your bonding capacity with SBA’s support.
If you ware a candidate for SBA guaranteed bonds your agent will ask you to complete two application forms for SBA.
SBA Form 912 is typically completed only once, during the initial application process, unless there are changes in ownership in your company.
It is a criminal history disclosure form that SBA uses to evaluate character.
SBA Form 994 is the one form that you will provide to your agent each time you need a bond while you participate in the Surety Bond Guarantee Program.
It is your application for SBA’s bond guarantee and it is project specific.
Your agent may ask for additional information based on your specific circumstances, but this is the basic information you should expect to provide.

17. Performance & Payment Bonds
Counting the Cost
Bid Bonds
No Fee
Performance & Payment Bonds
SBA Contractor’s Fee
.729% of the contract amount paid directly to SBA via
Surety’s Bond Premium 1.8% - 3% of the contract amount paid directly to your agent
Ask your agent for your exact rate in each state
Total bond costs typically included in bid estimates & initial pay requests to Obligees.
Bid bonds generally have no associated cost to secure.
You will incur bond costs when securing performance and payment bonds upon contract award.
SBA collects .729% of the contract amount for each bond guarantee it provides for a small business, and you will pay the SBA fee online with your agent’s guidance during the application process.
Charges for the Surety’s bond premium vary based on the rates your surety has filed in each state.
Since these rates vary you should ask your agent for your surety premium rate in the states in which you work so that you can include your total bond costs in your bid estimates and first pay requests to qualify for reimbursement with your obligee.

18. Free service of the U.S. Treasury
Pay SBA Online!
All SBA fees paid via
Free service of the U.S. Treasury
Choose your payment method:
Please do not pay fees until requested
ACH (Automatic Draft from Checking/Savings)
Debit Card
Credit Card
You will pay your fee to SBA through a free website provided to us by the U S Treasury,
The site allows you to choose how you pay your SBA fee – either through a draft out of your checking or savings account, with a debit card, or with a credit card.

19. The Application Process
Small Business
Authorized Agent
Partner
Surety
SBA
Contacts & Submits Application Package to Agent
Issues Bonds to Small Business
The application process begins with contacting an SBA authorized agent of your choice.
The agent evaluates your information, then submits it to an SBA partner surety for review.
Once the surety agrees to bond your firm and needs SBA’s guarantee to do so, the agent submits an application to SBA on your behalf.
Your SBA authorized agent uses our electronic application process to submit guarantee applications directly to SBA.
SBA reviews and approves bond guarantees in less than two days on average once they are received from our agents.
Upon SBA approval the agent provides you with your bond so you can submit your bid or get started on your project.
Evaluates & Submits Package to Surety
Agent Submits Application to SBA
Reviews Application & Provides Guarantee
in Less than Two Days on Average!
Approves Bond & Requires SBA Guarantee

20. Locate an SBA Authorized Bond Agent
Access SBA’s list of authorized bonding agencies: Contact an SBG Area Office Contact your local SBA District Office Ask your current agent to contact us if they wish to join
Not all agents are authorized by SBA, but we will provide you with a current list of SBA’s authorized agents as a follow up to today’s webinar.
You can also reach out to one of our staff members for referrals to authorized agents in your state.
If you have established a relationship with a bonding agent that you want to maintain, ask your agent if they are authorized by SBA. If not, we routinely authorize new agents, so feel free to share our contact information with your agent. We would be happy to talk with them about becoming an SBA authorized agent.

21. Additional SBA Resources
Loan Programs
CAPLines & SBA Express - Lines of Credit
SBA 7(a) Loans/Microloans/Community Advantage Loans/Export & Disaster Loans
8(a) Business Development Program
Small Business Development Centers (SBDCs)
Women’s Business Centers (WBCs)
Veteran Business Outreach Centers (VBOCs)
Procurement Technical Assistance Centers (PTACs)
U. S. Export Assistance Centers (USEACs)
Service Core of Retired Executives Counseling Services (SCORE)
Contact your local SBA District office or for additional information.
SBA offers additional resources beyond the Surety Bond Guarantee Program, including loan and contracting programs, and counseling services.
You can access your options for local assistance at under Local Assistance.

22. “We open doors to bonding” We’re Here for Small BusinessGU WA MT ND MN AK VT ME SD OR WI ID WY NH IA MI NY NE MA
Applications for SBA bond guarantees are underwritten by our staff in three Surety Bond Guarantee Program offices based on the location of your small business.
Please feel free to contact us if you have any questions or wish to discuss your particular circumstances and challenges in a more private setting before reaching out to an agent.
You can expect to receive copies of the slides from today’s presentation and a current agent list by as a follow up to this webinar.
(Turn over to Peter to add his comments if desired.)
Now, we’ll open the lines up to any questions.
Conclusion:
Thank you for taking time out of your day to join us.
We look forward to opening doors to bonding for your small business! IL OH PA RI PR NV UT IN CT CO KS NJ HI MO WV
USVI CA KY DE VA DC MD OK TN AR NC AZ NM SC
Seattle Area Office
2401 4th Avenue #450
Seattle, WA 98121
M. Catharine Powers
Area Director
(206)
Linda M. Laws
Und/Marketing Specialist (206)
Servicing Small Businesses in: AK, AZ, CA, HI, ID, MT, NV, NM, NE, ND, OR, SD, UT, WA, WY & Guam
DC Area Office
409 Third Street SW #8600
Washington, DC 20416
Earnest L. Knott, Jr Area Director
(202)
Jennifer Bledsoe Und/Marketing Specialist (202) Servicing Small Businesses in: CT, DE, DC, FL, GA, ME, MD, MA, NH, NJ, NY, NC, PA, RI, SC, VT, VA, WV, Puerto Rico & Virgin Islands  MS AL GA TX LA
Denver Area Office
721 19th Street #426
Denver, CO 80202
 Servicing Small Businesses in: AL, AR, CO, IL, IN, IA, KS, KY, LA, MN, MS, MO, MI, OH, OK, TN, TX & WI FL
Jennifer Vigil
Area Director
(303)
Tamara E. Murray
Und/Marketing Specialist
(303)