- Surety vs. Insurance – A surety bond is not insurance. It guarantees compliance and performance, protects third parties. It has three parties: the principal (buyer), the obligee (requiring entity), and the surety (issuer). Click here to learn more about the differences between surety bonds and insurance.
- Finding the Right Bond – There is no such thing as an all-purpose bond. Each industry normally requires specific bonds-for instance, a contractor license bond, freight broker bonds, motor vehicle dealer bonds. Check industry regulations to find out what applies to you.
- Useful resources-Your surety bond agency is where you mainly get it from, but it won’t hurt to consult with the obligee (like a licensing board) and government agencies like SBA.
- Types of bonds- Four bonds fall clearly into certain categories:
- Commercial Bonds – Guarantee that businesses will abide by regulation (motor vehicle dealer bonds, for example).
- Court & Probate Bonds – Do guarantees for duties regarding active cases (e.g., estate management).
- Fidelity Bonds – Protect businesses from employee fraud and theft.
- Contract Bonds – They ensure that contractors live up to the expectation of carrying out obligations.
- Bonds for Licensing – Indicate that a surety bond must be taken for the purpose of obtaining a license in many industries (for instance, by contractors and auto dealers).
- Changing Regulations – Requirements for bonds change from time to time; a good bond agent should advise you on changes in compliance with the current laws.
- New Businesses Can Be Bonded – New businesses are even able to get a bond. Rates, though, are usually higher as they are based on a shorter financial history.
- Credit Affects Pricing – Bond costs are determined by credit; a person with sound credit pays under 1-2% of the bond amount per year while, for the person whose credit ratings are poor, between 3-8%.
- Co-Signing Option – Co-signing will also help you bring down the costs because it will reduce the surety’s risk, but this is not available for every bond.
- Bonds Shall Be Up to Date- All business information changes such as name, address, or owner would require an update to a bond through a bond rider; renewals should also be done regularly.
- Visit Several Stores to Find the Best Price-Find several sureties offering different rates. A specialized bond agent can help you compare options to get the best price.
- Bond Cost Estimation-Various factors including bond type and amount determine costs. Online tools or a request for quote can provide a more accurate estimation.
- Choose an Effective Date – Normally, a bond’s effective date can be pre-established for as much as 60 days in advance. Some sureties also allow retroactive coverage.
- Financing Options – If cash flow is tight, some license bonds even have financing options that allow one to make installment payments. This does not, however, apply to all types of bonds.
- Simple process- It is not difficult to buy a surety bond. Identify the required bond, request for a quotation, fulfill payment, and finalize paperwork. Most of the work is done for you by a good bond agency.
