Surety Bond Guarantee Program

Updated: 04 July 2023

What Does Surety Bond Guarantee Program Mean?

The surety bond guarantee (SBG) program is program run by the U.S. Small Business Administration (SBA) to guarantee bid, performance and payments bonds for individual contracts worth $6.5 million or less for small and emerging contractors. To be eligible, they would need to meet the requirements of the SBA; however, the program is helpful because in many cases, these contractors are not able to obtain surety bonds through the available regular commercial channels.

Insuranceopedia Explains Surety Bond Guarantee Program

A surety bond denotes a kind of insurance that guarantees the performance of a contract. An obligee (or a business or creditor) requires the services of a contractor (or a principal) for a contract. The principal needs to assure the obligee of their ability to fulfill the contract. Therefore, the principal purchases a surety bond, whereby the surety company becomes responsible for the principal’s obligations. In case the principal defaults, the surety company seeks another principal for the contract. In case the principal defaults, the surety company could recompense any financial losses incurred by the obligee.

The three most common types of surety bonds are:

  • Bid bonds, which guarantee that the bidder on a contract enters into it and produce the required payment and performance bonds on being awarded the contract;
  • Payment bonds, which guarantee that suppliers and subcontractors would receive payment for any work performed under the contract; and
  • Performance bonds, which guarantee that the contractor would carry out the contract in accordance with the terms and conditions specified.

Related Reading

Go back to top