If you want to be a subcontractor to a prime contractor, you will most likely need to obtain a surety bond. Bid bonds, performance bonds, and payment bonds are the three main types of surety bonds. A bid bond is submitted when you bid on a project, and obligates a firm to honor its pricing if it is awarded a contract. A performance bond obligates a company to complete a project according to the contract terms. A payment bond is a guarantee that the firm will pay all its subcontractors, craftspeople, and suppliers. If you fail to honor the terms of the surety bond, then the surety company that issued the bond will be responsible for paying.
Because of the risk involved, surety companies review detailed credit and financial information about your firm before issuing a bond. Your company has to prove to the surety company that it is capable of honoring its commitment. If you are granted a bond, you pay a premium (similar to an insurance premium) for the surety bond.
The Small Business Administration has programs in place to help small businesses get the bonds they need. The agency's Surety Bond Guarantee Program will guarantee bonds as high as $2 million, and is open to all small businesses. Bonds are issued by a surety company, and the SBA will guarantee 70% to 90%, depending upon the program.
The Small Business Administration's Surety Bond Guarantee Program is the first place to start looking for bonding assistance. There are two Bond programs available; the Prior Approval Bond Program and the Preferred Surety Bond Program. Make sure to review each type to see which one is the best fit for your business. For an overview of the Surety Bond Guarantee Program and a list of participating surety companies, visit our review here: How to Get Bonding Assistance from the Government.
Some other helpful resources that can help your firm include the National Association Of Surety Bond Producers and the Surety & Fidelity Association of America (SFAA)
Visit http://www.subcontracker.com to learn more about how to increase business opportunities through subcontracting. The site features subcontracting support, help, and advice.
