A surety bond (pronounced “shoo·ruh·tee”) is a third party contractual obligation that assures payment, performance, or compliance between the surety, the principal, and the obligee. (See definitions below)
Surety- A surety company is the insurance company that provides the guarantee for the payment, performance, or compliance this is being required. Both surety agents and surety companies are licensed and governed by state and federal insurance regulations. All surety bond agents or producers must have an active insurance license in the state where the surety bond is required.
Principal- The principal is the business or individual that is required to post the surety bond. This party is responsible for performing, paying, or complying with the requirements guaranteed by the surety bond.
Obligee- (pronounced “aa·bluh·gee”)is the party that is requiring the surety bond. Many times this is a federal, state, or local municipality. Often, the obligee is the party that receives the benefit of assurance provided by the conditions of the surety bond.
Bond cost varies greatly; it is dependent on bond type, the applicant’s credit history / financial performance, and the location where the bond is needed. Different states require different bond amounts, as do different surety companies. For an applicant with an excellent credit history, the cost is usually between 1% and 3% of the total bond amount needed. The best way to find the most competitive price for a particular bond is to submit an application and let us get you a quote.
Surety bonds are required by many municipalities, construction contracts, court proceedings, and others. Specific industries are required by the law to have bonds to protect consumers. In some cases, a bond is required before a business license will be issued. Bonds are regulated by national, state, and local laws, so it is important to understand whether or not you will be required to have a bond before starting a business. If you are unsure if you need a bond or what type of bond you need, just reach out to one of our surety specialists here.
A surety bond is a financial guarantee on the work you do, so the bond company requires information about your credit and financial history as part of the bond application process. Reviewing your credit history tells the bonding company whether you can be considered financially reliable. A good credit score means a lower bond fee, but even those with terrible credit may be able to get a bond at a higher premium. These are called “high risk” applicants and are sent to special divisions within the company to get the best price available. The fee for “high risk” applicants can be between 5 and 20 percent, or more, of the total amount of the bond. We want you to get the best coverage at the best price, and will work with our sources for your benefit.
That depends mostly on financial history. With good credit and a reasonable financial history the rates will generally be lower. If a business owner hasn’t had the chance to build their credit the fees will be more. This protects the surety since they cannot confirm the business owner’s financial stability. The good news is that there are resources for new businesses. The Surety & Fidelity Association of America has developed the Model Contractor Development Program which assists new contractors in more easily securing their bonds. The Small Business Administration has a branch called the Office of Surety Guarantees assists new contractors in getting and keeping the bonds necessary to operate.
No, insurance protects against risk. Surety bonds protect in the event of an unexpected failure of the principal. A bond is like credit- it only has to be paid if the principal fails to complete the contract. This protects the obligee, not the principal. Insurance protects the principal- you- in case of loss. Bonds help encourage the principal to be accountable for their end of the contract and to complete it. A surety bond premium only covers the fees for underwriter and the services they provide. Insurance is more expensive because the holder is paying into a general fund that will cover the insurance company in the event they have to make a claim.
The costs vary because they are two very different types of bonds. A contract bond does just that- binds the person who signs a contract to do their work. They are used solely in construction as a guarantee of the principal’s payment, maintenance and performance. A commercial bond offers permission to do something with the condition that the principal will conduct business in accordance with the local, state and federal laws. Commercial bonds are less difficult to obtain because they are lower in risk. This also means that depending on the financial history of the applicant, their rates are lower and easier to predict. These costs also vary from state to state and even city to city. The best way to determine these rates is to ask for a quote- we do all the work for you with regards to finding the different fees, forms, etc.
Like any purchase, you want to be sure you’re getting a good deal. At Bonding Solutions, we take the guesswork out of it- we get quotes from all of our agents and give you the best price possible. If you are looking for a certain type of bond, and another cheaper type of bond will suit your needs better, we will point that out to you as well. Your bond experience should be stress-free and smooth. We offer great rates and better service than most other companies.
None, the bond application and quote are free of charge. Some companies charge for application, and that leaves you with less money than you anticipated for your bond. At Bonding Solutions we offer free application and quotes- you should be able to have your questions answered without having to pay an arm and a leg. We are also available Monday through Friday from 8AM to 5PM, with a nighttime answering machine that allows us to get back to you promptly. The future of your business shouldn’t depend on waiting for a bond.
We charge a bond fee at the time you purchase your bond. If the bond has a renewal period, you will be billed on each renewal date. For high-risk principals, we do have one market with which we allow payment plans, but we still require a percentage of the total fee at the time of purchase. We accept checks, credit cards (Visa, MasterCard & Discover) and money orders. Our software allows us to process payment onsite, so you won’t have to wait days for your check to clear before you can have your bond.
Not a problem. Unfortunately, sometimes market conditions are such that we come across this situation with our clients. Bonding Solutions has relationships with a wide variety of surety companies where your bond can be placed. We have special programs geared to handle bad or adverse credit applications. We work hard for each client regardless of issues which might make it difficult to approve a bond request. For clients with credit history challenges, we are able to meet your bond needs through our non-standard surety markets and in some cases we can place them in our standard programs. Please keep in mind for a high-risk, or bad-credit bond, the cost is generally higher.
We understand our clients want the most for their money. At Bonding Solutions we have done our very best to keep the premiums as competitive as possible. Being a “bonds only agency” we have developed strong relationships and special programs without surety companies. To help you make an informed decision on the cost of your bond, we have provided a handy Surety Bond Premium Calculator.
In general, commercial bonds through a standard risk market will be between 1% and 5% of the bond amount. Court and legal bond premiums are about the same. For high-risk bonds, the price will range from 10% to 20% of the bond amount. For some bonds there is a minimum charge, regardless of the bond amount. Whatever the case, we offer nationwide competitive rates to satisfy your bonding needs for the lowest possible price.
Contract bonds are priced based on the size of the job to be bonded. Generally, bonds under $500,000 will have a premium of 1% to 3% of the dollar amount of the bond. For jobs over $500,000, it is a graduated rate, and the larger the bond, the smaller the premium is, on a percentage basis. Again, our handy Surety Bond Premium Calculator is a great tool to give you a good idea of the cost of your bond
Many bonds can be issued through our instant issue application process, or in other words, same day. All other commercial and court bonds are issued within a day or two of when Bonding Solutions receives your request, depending upon your qualification. Smaller contract bonds can usually be issued within a few days, as well. For larger contract bonds, there is a variety of financial data for the company and its owners that has to be submitted and reviewed. In most instances, however, that process takes about one week, sometimes slightly longer depending on the complexity of the project, the size of the job, and the amount of financial data submitted.
In the rare instance that collateral is required, most surety companies will require a cashier’s check on deposit with them, a CD at a bank, or a letter of credit from an approved financial institution to secure a bond. Typically collateral is required only when the client presents a high-risk, or when the type of bond requires it.
Most commercial bonds are good for 1-3 years, but can vary depending on the bond type. Court bonds are effective for as long as is necessary, as determined by the court in whose jurisdiction the bond is issued. Contract bonds (bid, performance, and payment) offer coverage during the duration of the construction project, per the contract, for which they are issued. Sometimes a contract will require a longer warranty and in this case the contract bond will extend it’s coverage.
A surety company is the insurance company that provides the guarantee for the payment, performance, or compliance this is being required. Both surety agents and surety companies are licensed and governed by state and federal insurance regulations. All surety bond agents or producers must have an active insurance license in the state where the surety bond is required.
The principal is the business or individual that is required to post the surety bond. This party is responsible for performing, paying, or complying with the requirements guaranteed by the surety bond.
(pronounced “aa·bluh·gee”)is the party that is requiring the surety bond. Many times this is a federal, state, or local municipality. Often, the obligee is the party that receives the benefit of assurance provided by the conditions of the surety bond.