The U.S. Small Business Administration will accept more risk by backing larger bonds for contractors, but the agency also will be more careful when selecting which builders to support.
In an effort to encourage bonding companies to issue performance and payment bonds to small contractors, the SBA agreed to pay for claims filed against those bonds. But small builders are complaining the SBAâ€™s $2 million threshold on the bond amount limits their ability to pursue projects.
So the SBA last week increased the threshold to $5 million, said Frank Lalumiere, director of the SBA office of surety guarantees. To protect itself from accepting more risk, the agency will look closely at contractorsâ€™ financial situations before backing the larger bonds, he said.
â€œItâ€™s a tough one,â€ Lalumiere said. â€œBut the bottom line after all is said and done is we want to give these companies a shot.â€
Only 2.5 percent of the bond guarantees the SBA had open in 2008 had claims filed against them, Lalumiere said.
Tony Arteaga, president of Arteaga Construction Inc., Milwaukee, said offering larger loans to small contractors is a good idea, provided the contractors are responsible and do not bid so low that they canâ€™t complete the projects.
Andrea Michael, assistant bond manager for CCI Surety Inc., Golden Valley, Minn., said companies must have more money on hand to get SBA guarantees for more expensive bonds. She said contractors must meet SBA surety company regulations to get the higher bond amounts.
â€œI think the guidelines have been set well enough that theyâ€™re low enough for people to qualify,â€ Michael said. â€œBut theyâ€™re really mitigating the risk as well.â€
Michael said she cannot predict whether the SBAâ€™s higher threshold will result in more bond applications.
Most of the bonds that receive SBA guarantees are around $500,000 or $1 million, she said.