Mechanics liens and surety bond claims are among the best tools available to contractors, subs, and suppliers. By leveraging lien rights, an unpaid party is able to enforce their right to payment by putting an owner’s property at risk of eventual foreclosure. Public property cannot be encumbered by a mechanics lien, but a general contractor must provide surety bonds on projects.
Surety bonds give subs and suppliers a safety net similar to a mechanics lien. If payment issues arise, a subcontractor or supplier may file a claim on the bond in order to receive payment. Because the bonds act as insurance policies on construction projects, surety providers look to minimize risk when issuing bonds. Emerging businesses are not exactly a safe bet, especially in the construction industry. As a result, small businesses often struggle to secure affordable bonding.
Help With Louisiana Surety Bonds: The Bonding Assistance Program
Competition in the market may drive down surety bond prices going forward. In the interim small businesses need all the help they can get. On this front, the state of New Jersey recently created the Small Business Bonding Readiness Assistance Program to help industry members obtain surety bonds. Louisiana is doing the same with the Louisiana Economic Development’s Bonding Assistance Program.
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Who does the program help?
The Bonding Assistance Program is only available to those businesses that are members of the Louisiana Economic Development Small and Emerging Business Development Program. Registering for the program is easy, but both the business and its owner must meet certain eligibility requirements.
For a person to be considered a Small and Emerging Business Person:
- The person must be a U.S. citizen or legal resident
- The person must be a Louisiana resident of at least one year
- The business being represented is owned and controlled by persons who individually have a net worth under $400,000 (excluding personal residences, business assets, and retirement accounts)
- A managing owner of a firm applying for the program must be a full-time employee of the firm
For a business to be considered a Small and Emerging Business:
- The business must be owned and controlled by one or more Small and Emerging Business Persons
- The business’ principle place of business is Louisiana
- The business is organized for profit to perform a lawful, commercially useful function
- The business’ net worth does not exceed $1.5M
- The business anticipates creating new full-time jobs
For more information, head over to LED’s page on the Small and Emerging Business Development Program.
What does the program do?
For those contractors in the Small and Emerging Business Development Program, the state is making it easier to obtain Louisiana surety bonds by effectively co-signing a portion of the bond. This will mitigate the risk that a surety provider incurs when issuing a bond to a small or emerging business. Specifically, the state will guarantee the lesser of 25% of the contract price or $100,000.
LED’s page on the Bonding Assistance Program has more details.
Takeaway
Surety bonds are a pivotal tool in the construction industry. Programs like this could prove to be a rare “win-win-win.” By making Louisiana Surety Bonds more easily available for small and emerging businesses, the state is setting up contractors for success. It’s a good deal for taxpayers, too. With more contractors able to bid on public projects, prices of public projects should go down. Surety providers should be thrilled as well since the state is cutting out some of the risk involved with providing bonds. Considering the amount of risk in construction payment, all help is welcomed.
For more on Louisiana surety bonds, here is a guide to Louisiana payment bond claims, some basics on Louisiana bonds, and Louisiana’s Little Miller Act. For more on surety bonds in general, here’s the Surety Bonds tag on the blog.
