Surety bonds became imperative for legal work performance in many industries. Most states require new companies to become bonded and licensed before they start the business. Considering bonds provide protection for the clients and the state from all the frauds and misdeeds of the company, it’s no wonder why they are needed. But how well do you know surety bonds? Today, we answer frequently asked questions about surety bonds to help you get a good grasp of the topic before you become bonded and licensed.
What is a surety bond?
A surety bond is a contract between three parties: the principal, the obligee, and the surety. An obligee requires the bond to ensure the principal will follow the agreement and provide financial coverage in case of any failure, fraud, or misdeed regarding the project. The principal purchases the bond from the surety, which is an agency that guarantees the performance or obligations of the contract will be met. The surety bond is required in many industries, from construction to lottery.
The surety bond is meant to guarantee the principal’s compliance with the industry laws, regulations, and standards. Should the principal fail at any point of the contract, the obligee will file a claim against the bond. If the surety determines the claim is valid, it pays up for all the obligee’s financial losses and collects the debt from the principal later on.
How to know whether you need a surety bond?
Surety bonds work as risk-assessment tools for most businesses. However, they are not always required. It all depends on the industry and the type of business you want to perform. The best would be to check with a surety agency or the state itself whether you need a surety bond to work in a particular industry. For example, those who would want to become mortgage brokers should consult the Department of Banking and Finance in the state.
How much a surety bond costs?
The surety bond price mainly depends on the type of bond you need. The obligee usually sets up the bond amount you need to purchase. However, the principal only pays for the surety bond premium, or in other words, to obtain the bond over time (unless the claim is made). The surety bond premium price is determined by each particular surety agency and comes in percent of a total bond amount.
How long does it take to get a surety bond?
It all depends on the bond type, but most smaller contract bonds can be issued within a few days. Larger bonds might take more time because underwriters have to examine a lot of financial data and review other important factors.
If you need your surety bond quickly, check the instant issue application process at Bonding Solutions. We can issue many bond types the same day our clients need them!
Will my credit score affect the surety bond price?
Because surety bonds work as a financial guarantee on the business performance, your credit score directly affects the bond price. The surety agency takes into account the credit and financial history of each applicant and accepts or declines to issue the bond accordingly. The financially stable principals are more likely to get approved and bonded at a lower premium price.
Can I get a surety bond with bad credit?
Yes, you most certainly can. Although not all companies give this option, there are still many surety agencies that work with principals who have financial issues. The only thing to keep in mind is that you might have to pay a higher premium for the bond.
What is the difference between a surety bond and an insurance policy?
While a surety bond protects the obligee from the unexpected failure of the principal, an insurance policy protects the principal in case of loss. Bonds encourage the principal to honor the agreement with another party and work in compliance with laws and regulations. Insurance does all of this for the business owner in case of financial loss and other similar situations.
Where to get a surety bond?
You can get a surety bond from a licensed surety agency registered in your state. If you’re looking for reliable services, Bonding Solution offers all bonding options at affordable rates. With more than 60 years of experience and a team of experts, we are ready to custom tailor every surety bond type and help your business succeed and grow. Contact top Surety Bond Company here or apply online for a free consultation.