Louisiana Economic Development is making a new form of financial support available to contractors through its Bonding Assistance Program, which Gov. John Bel Edwards relaunched in 2016 to support emerging, minority and women-owned, veteran-owned and other small businesses.
Early-stage companies can be stymied in their efforts to secure construction contracts because large projects require significant bonding capacity that young companies often lack. In the eight years since it was revived, the BAP has provided risk mitigation through a partnership between LED and bond issuance companies, resulting in more than 30 Louisiana small businesses securing over $30 million worth of construction contracts.
The addition of a default mitigation fund will further level the playing field by helping certified small and emerging construction businesses receive bonding at reasonable rates by reducing the surety’s risk.
“Cash flow is a really tough issue for small and emerging businesses attempting to qualify for bonding for the first time,” LED Assistant Secretary of Economic Development Brenda Guess said. “This new program helps eligible companies cover a potential shortfall in the early stages of their project – a time when companies face financial stress due to the demand of increased equipment needs and the purchase of materials. Should cash flow issues manifest during construction, this fund will keep construction contracts out of default as the project work continues, allowing for production of revenues in later contract phases.”
The Bonding Assistance Program offers up to a $100,000 guarantee, or 25 percent of the total contract, whichever is less, for three types of bonds:
- Traditional bid bonds, guarantee that a contractor will enter into a contract if awarded a bid.
- Performance bonds, guarantee that a contractor will perform the work as specified by the contract.
- Payment bonds, guarantee that a contractor will pay for services and materials.
The default mitigation fund will provide recipients up to $40,000 of that guarantee, or 10 percent of the contract price, whichever is less, in mitigation funds. The funds can only be used to prevent default, and cannot be used for project mobilization.
“The default mitigation fund allows us to support a broader range of businesses, including those that have not historically had access to bonds,” LED Secretary Don Pierson said. “With this new fund, we are increasing the diversity of contractors who get bonded in our state, and improving equity among business owners, particularly owners of small and early-stage construction companies.”
Contractors must first become certified in LED’s Small and Emerging Business Development Program to be eligible for the Bonding Assistance Program guarantees and default mitigation funds. The surety company will issue bonds should the contractor receive a favorable underwriting result.
