Small Business

The Small Business Administration's (SBA) Preferred Surety Bond Guarantee Program allows approved insurance companies to issue SBA-guaranteed surety bonds without SBA's prior approval of individual bonds. Surety bonds ensure that a contract will be completed, and supplier and workers paid, should the contractor fail to perform the contract. The goal is to encourage large insurance companies to issue SBA-guaranteed bonds and in turn increase the access the surety bonds by small businesses owned and operated by minorities and disadvantaged individuals. GAO found that the program has boosted large insurance company participation in SBA's bonding activities. The impact on minority firms is unclear, however.

GAO found that: (1) the PSB program increased standard sureties' participation in SBA bonding activities from 1987 to 1993; (2) standard sureties in the PSB program accounted for 9 percent of all bonds and 13 percent of the contract dollars guaranteed by SBA during fiscal years (FY) 1991 through 1993; (3) three standard sureties, two of which are affiliated companies, issued 85 percent of the bonds guaranteed under the PSB program; (4) one company accounted for 65 percent of the bonds guaranteed during FY 1991 through 1993; (5) half of the 14 standard sureties approved for the program as of March 1994 received approval during 1993; and (6) although minority-owned businesses accounted for 18 percent of all SBA-guaranteed bonds issued during FY 1991 through 1993, the extent of minority firms' participation is uncertain.