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FAR and DFARS › FAR Part 32: Contract Financing › Subpart 32.3

FAR 32.304-7 Contract surety bonds and loan guarantees.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section addresses when the government can guarantee a loan to a contractor that also has contract surety bonds. It says surety bonds conflict with the government's interests under guaranteed loans unless the surety's rights are subordinated to the guaranteed loan. In certain cases, the agency cannot approve a loan guarantee unless the surety agrees to subordinate its claims, and for substantial bonded subcontracts, a reasonable allocation agreement between sureties and the financing institution is required.

Applies to: Government agencies considering loan guarantees for contractors with surety bonds

What it requires

  • The agency shall not authorize the guarantee of a loan on a bonded contract unless the surety enters into an agreement with the financing institution to subordinate the surety's rights and claims in favor of the guaranteed loan, if a substantial share of the contractor's defense contracts are covere
  • Agency approval of a guarantee for a loan involving relatively substantial subcontracts covered by surety bonds shall also depend on the establishment of a reasonable allocation agreement between the sureties and the financing institution.

Key terms: contract surety bonds · loan guarantees · subordinated · surety · financing institution

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

(a) Contract surety bonds are incompatible with the Government's interests under guaranteed loans, unless the interests of the surety are subordinated to the guaranteed loan.

(b) If a substantial share of the contractor's defense contracts are covered by surety bonds, or the amount of the bond is substantial in relation to the contractor's net worth, the agency shall not authorize the guarantee of a loan on a bonded contract unless the surety enters into an agreement with the financing institution to subordinate the surety's rights and claims in favor of the guaranteed loan.

(c) The agency approval of a guarantee for a loan involving relatively substantial subcontracts covered by surety bonds shall also depend on the establishment of a reasonable allocation agreement between the sureties and the financing institution. The agreement should give the financing institution the benefit, with regard to payments to be made on the contract, of the portion of its loans fairly attributable to expenditures made under the bonded subcontracts before notice of default.

← 32.304-6 Other collateral security. · 32.304-8 Other borrowing. →

Rule changes for FAR Part 32

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

FAR 32.304-7 Contract surety bonds and loan guarantees · SpendQuery