What is a surety bond?
A surety bond is a guarantee from a third party, the surety company, that the obligations made in a contract from one party to another will be fulfilled. Of course there are many types of obligations and therefore many types of bonds.
What is the difference between bonds and insurance?
Many people call bonds “insurance,” and while they are a risk management product, the similarities end there. For example, if you are the one being required to provide a bond then it is important to know that the bond protects another party from your failure to meet your obligations whereas insurance would protect you instead. Also, the underwriting process is much more similar to banking except instead of a credit line you get a bond line.
How do surety bonds work?
There are three parties involved: the obligee (typically an owner) wanting to be protected asks for the guarantee (bond), the principal (typically a contractor) being asked to guarantee their obligation (the work) and the surety company backing up the guarantee with their financial strength. Any time there is an obligation then a bond can possibly be put in place to guarantee it. However, not all obligations can or will be bonded. If a bond is provided and the obligation is not met by the principal then the surety may receive a claim and may have to complete the obligation or pay the penalty of the bond.
How do I know if I need a surety bond?
You only need a surety bond if you are asked to provide one to guarantee your obligations. In the construction industry this is most common when dealing with public entities like cities, states or the U.S. Federal Government. Some private entities and general contractors also require bonds when contracts exceed a certain threshold or if you do not meet their prequalification requirements.
Can I get a surety bond with bad credit?
There are many ways that bad credit can occur and so we will listen and work with you to review your circumstances and find surety markets that can help. The surety company reviews each case separately and will take into consideration the details in the credit report that have caused the low scores. Some items like medical debt are typically not treated as a serious problem while others like bankruptcy or tax liens are very serious and will likely prevent surety credit from being extended; however, even in those cases there are exceptions that allow bonding to still be granted.
What is the benefit to providing a surety bond?
Not everybody can get a bond so by getting a bond you are presenting yourself as a professional and financially stable entity and therefore credible. Also, in order to bid and perform work with certain entities, especially public entities like cities, states and the Federal Government, you may be required to provide a bond.
What is the downside to providing a surety bond?
Bonding is not for everyone. Typically, in order to obtain a bond you must sign an indemnity agreement that promises that you will repay the bonding company for any losses they incur while making good on any obligations that you were not able or willing to meet. The indemnity agreement typically includes both personal and company guarantees back to the surety. Some people are just not willing to provide that level of guarantee to the surety company.
What is the process to get a surety bond?
Because the process can vary greatly depending on the type and size of bond you need it is best to start by giving us a call. Some bonds are very freely written and require very little personal information; however, other bonds, like performance or payment bonds, may require CPA prepared financials, tax returns, bank references and more.
How long does it take to get a bond?
Many times if you have good credit then the process can be completed within a day. There have been many cases where we have started the process with a new prospect in the morning and by the afternoon finished with a new client. Give us a call and we can give you a time and cost estimate.
If I am an insurance broker, can you help my clients with bonds?
Yes, we can help. We handle bonding for insurance agencies that struggle with providing bonding services to their clients because they don’t have a dedicated staff to handle those needs. We would be happy to meet with you to discuss how we operate. Please give us a call.