US SMALL BUSINESS ADMINISTRATION SURETY BOND GUARANTY ASSISTANCE PROGRAM Mark S. Romanak CIC The Brower Insurance Agency LLC April 20, 2004

SBA PROGRAMS  1. Loan Program  2. Bond Program  3. 8A Program  4. Hub Zone Program

SBA BOND PROGRAM  1. Provides Guaranty to Bonding Company  2. Plan A and Plan B Programs  3. Underwriting  4. Program Qualifications  4. Information needed to qualify

PROVIDES GUARANTY TO BONDING COMPANY  1. Guaranty varies depending on contract size and program  2. Guaranty allows surety to relax some of their underwriting requirements  3. In event of bond claim, the bonding company adjusts the claim and then bills SBA for percentage of claim guaranty.

Plan A PROGRAM  1. Surety or authorized agent underwrites contractor  2. Approves bond subject to SBA approval  3. Sends necessary information and SBA forms to appropriate SBA office for consideration  4. Upon approval, agent or surety executes bond.  5. Agent forwards necessary paperwork to surety

PLAN B PROGRAM  1. Preferred Surety Program  2. Surety company underwrites and defines what underwriting will be  3. Obtains appropriate SBA forms  4. Guaranty automatic  5. Surety or authorized representative executes bond

UNDERWRITING  1. Plan A and Plan B different approaches  2. Experience – Will consider up to 2 times the largest similar project completed  3. Financial – Working capital (actual plus unused bank line = 10% of job to bid plus costs to complete remaining work)  4. Bank Credit very important  5. Bonding Lines available

PROGRAM QUALIFICATIONS  1. Largest contract and bond written in SBA program is $2,000,000  2. For construction contractors, the per year sales average over last three fiscal years must be less than $5,000,000  3. Sales average includes all businesses owned by business or owners of business.

PROGRAM QUALIFICATIONS cont  4. No federal or state tax liens against owner or company.  5. No unsettled, uninsured lawsuits filed against company.  6. No unsatisfied judgments against company.  7. All SBA loan payments (if any) must be current

PROGRAM QUALIFICATIONS cont  7. No bonds written that exceed 100% of contract price  8. No completion bonds (subdivision type)  9. Contract bid, performance, payment and maintenance bonds only.  10. No existing or unsettled bond claims with SBA

INFORMATION NEEDED TO QUALIFY  1. Last three fiscal year end financial statements  2. Latest interim financial statement if other is over 6 months old  3. Current personal financial statement of all owners who have more than 20% ownership  4. Current contractor questionnaire  5. Current aging of accounts receivable and payable

INFORMATION NEEDED cont  6. Current work on hand statement  7. Current bank line of credit  8. Current certificate of insurance  9. SBA forms completed and signed  10. Signed, witnessed and notarized general indemnity agreement

FINANCIAL STATEMENT  1. Up to $100,000 will accept signed in house prepared statement  2. $100,000 - $250,000 CPA Compilation  3. Over $250,000 CPA “Reviewed” financial statement

FINANCIAL STATEMENTS cont  1. Cover letter from accountant showing scope of examination  2. Balance Sheet  3. Profit and Loss statement  4. Statement of Cash Flows  5. Notes to Financial statement

FINANCIAL STATEMENTS cont  1. Must be completed on an accrual basis.  2. Must be a GAP basis rather than Income Tax basis

SBA Forms  1. SBA Form 912 – Statement of Personal History  2. SBA Form 994 – Application for Surety Bond Guaranty Assistance  3. SBA Form 1261 – Statements Required by Laws and Executive Orders

SBA Forms  4. SBA Form 1624 – Debarment form  5. Forms can be obtained at SBA website Click on “Online Library” then click on forms.

TIME FRAME  1. Initial submission 10 working days or less  2. Subsequent bid, performance and payment bonds 3 working days or less.

PREMIUM COSTS  1. Some companies and brokers may charge bid bond fees.  2. SBA fee is $6.00 per thousand of contract price  3. Premium rate varies by surety company.