The following guest post on surety bonds is provided by Kevin Kaiser of Surety Bonds.com, a nationwide bonding agency dedicated to educating people about surety bonds through their Surety Bond Education Program. (http://www.suretybonds.com/edu/). Five questions about bonds follow and are answered by Kevin.
1) What is a Surety Bond and How is it Different Than Insurance?
This is probably the most common question asked regarding surety bonds because the bonds and insurance are both tools used for mitigating risk. The tools are confused even further because surety bonds are sometimes referred to as “surety insurance”.
It is important that users not confuse surety bonds with insurance because they are actually quite different. Surety bonds are a form of credit not unlike to paying interest on a bank loan.
To be completely technical, a surety bond is a three-way agreement where losses are unexpected. The monthly premium costs typically pay for pre-qualification services and cost associated with the underwriting of the bond.
Think of a surety bond like this: you are a contractor and you just got a big job. But there might be unexpected circumstances that delay the completion of the job, so you obtain a surety bond. This bond protects the person who hired you in case the unexpected consequences become reality. If weather delays the construction of the road project you’re working on, the surety bond will cover the cost of completing the project, protecting the hiring party and providing incentive for you to be quick, but thorough.
2) Do I Need a Surety Bond for My Small Business?
Most small businesses could stand to take advantage of surety bonds in some way, shape or form. Many businesses that require a license to operate will also require that you have a surety bond. Some of the most common industries that require a surety bond are mortgage and insurance brokers as well as car dealers.
3) How Much Does a Surety Bond Cost?
The surety bond cost will depend greatly on the type of bond and the credit of the person applying for it. With good credit you can get a bond for anywhere from .05% to 5%. With less than stellar credit you could end up paying 5 -15% of the total bond amount.
4) Do I Need to Annually Renew My Bond?
Yes, most bonds will require that you renew the surety bond every year. Because there is so much variation in the types of bonds people need, the costs and requirements vary greatly.
5) How Can I Get a Surety Bond?
Surety Bonds are typically pretty easy to obtain. For most people with good credit an application is all that is necessary to obtain a bond of $25,000 or less. The application process works quickly and can typically be completed in 24 to 48 hours. If there are multiple partners involved or cosigners, the process gets complicated and takes longer to complete.
