# Does SBA construction require a payment and performance bond?

**Short answer:** On a 7(a) loan, construction above $350,000 needs a 100% bond unless a construction manager provides funds control. At $350,000 or less, SBA waives it if the lender uses its usual construction policies. Source: 13 CFR § 120.200.

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Last checked: 2026-11-08

It depends on the size of the construction component. 13 CFR § 120.200 requires a 100% payment and performance bond and builder's risk insurance on 7(a) construction, unless SBA waives it. SOP 50 10 8.1, Section B, Ch. 6, Para. A.4, explains the waivers.

## Construction of $350,000 or less

SBA has a blanket waiver of the bonds and of proof of builder's risk and workers' compensation coverage. The lender must apply the same risk policies it uses on similar non-SBA construction loans.

## Construction above $350,000

Before construction starts, the lender must obtain evidence of a 100% performance bond and a labor and materials payment bond from the licensed contractor. The contractor must also carry builder's risk and workers' compensation insurance.

Only a corporate surety approved by the Treasury Department may issue these bonds, using an American Institute of Architects form or comparable coverage. Only the borrower may be named as obligee.

## The waiver above $350,000

The blanket waiver also applies when the lender retains a third-party construction management firm. It applies too when the lender has an internal department that routinely manages similar loans. The monitoring must include funds control for all disbursements.

## Lien risk stays

The lender must document completion to plans and obtain lien waivers and releases. A mechanics' lien that takes priority can lead to a repair or denial of the guaranty.

## Sources

- [13 CFR § 120.200](https://www.ecfr.gov/current/title-13/section-120.200)
- [SOP 50 10 8.1, Sec. B, Ch. 6, Para. A.4, Construction Loan Provisions (about pp. 202-204)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)