Obtaining a Guarantee (or Surety)
A guarantee, or surety, is a promise made by a third party who agrees to assume responsibility on a liability, such as a bond, loan, or payment, of a borrower in the event of default. The individual or company who agrees to the responsibility, or the guarantor, can often be a private individual or a bank. Often the use of a bank reduces the risk to various liabilities and often improves bond credit agency ratings.
In the United States and other common law jurisdictions, a guarantee is only value when written and signed by both the borrower and guarantor. Also, a creditor cannot pursue a guarantor unless the creditor has exhausted all possible forms of pursuing the debtor.
As mentioned, individuals can obtain guarantees through banks. The advising bank acts as a party of the guarantee and can provide various different guarantees, such as a performance bond, warranty bond, advance payment guarantee, or credit/loan repayment guarantee.
The government can also enter into the commitment of guaranteeing a surety. Under Title 15 of the U.S. Code, § 694b, Surety bond guarantees, the Administration may guarantee a surety against loss from the principle’s breach of bond as long as the principle does not exceed $5,000,000. The Administration can evaluate the commitments based on previous experience with the surety and authorize any surety without further administration approval.
All guarantees that are issued must involve a small business concern, require a person to bid on the contract, expect that the principle will perform the conditions reasonable to the bond, and that the borrower agrees to these conditions as well.
Small businesses can receive warranties from the federal government. The U.S. Small Business organization, an independent agency of the federal government who works to help and protect small business interests, has two surety bond guarantee programs. The Office of Surety Guarantees, a division of the Small Business Administration works to provide and manage these guarantees for qualified small. One is the prior approval, or the SBG Program and the other is the Preferred, or PSB program.
In either program, the United States Small Business Administration does not directly issue the bond to the borrower. For the Prior Approval program, the borrower must be able to find a bonding agent representing a participating surety company or just a surety company who is willing to provide the bond.
A borrower must submit the correct forms and provide the proper information to the agency who will then choose to execute the bother, either with or wither the Small Business Administration guarantee. All forms for obtaining the surety bond guarantee can be found on the Small Business Administration’s website. This application can be submitted 24 hours a day, seven days a week electronically through the E-application system. The information is sent directly to the surety company agent.