Surety Bond Insider

At SuretyBonds.com, we understand that most business professionals don’t know about surety bonds until they need one. That’s why our experts go the extra mile to explain the intricacies of bonding, from what a surety bond is, to why you need one, to how much your bond will cost and everything in between. Today, we’ll answer some frequently-asked questions about surety bonds in the final part of our 3-part series. Read part 1 here and part 2 here.

In part 2, we discussed if and when surety bonds must be renewed. Here’s a little more information about the renewal process.

How do you renew your surety bond?

Whether the bond has a set expiration date, specific term or expires when the principal’s license expires, most surety bonds must be renewed prior to the bond’s expiration. To renew your bond, you’ll pay a renewal premium to your surety provider. Typically, renewal premiums are similar to the premium price you paid for your initial surety bond. There is a chance that your premium could increase or decrease, however,  if there were significant changes to the bond requirement or your credit report. Most principals submit their bond renewal applications to the surety provider that issued the initial bond because they already have their financial history on file, resulting in a more efficient renewal process.

What should you do if you want to cancel your bond?

Give us a call at 1 (800) 308-4358. Our trained surety experts can guide you through the process of cancelling your surety bond and answer any other questions.

What should I do if my surety bond is canceled?

A surety underwriting company can cancel a surety bond at any time for a number of reasons. Although there is typically a cancellation clause in the bond requiring the surety to provide the other two parties in the agreement with a cancellation notice, surety underwriters retain the right to cancel most bonds if they wish. This usually occurs if claims have been made against the bond and the principal has shown a tendency to violate the terms of the surety bond. agreement. If this occurs, you can reapply for the bond, but should expect to pay a higher premium rate if approved due to a higher risk.

Have more questions? Our experts are ready to assist you with all of your bonding needs. Give us a call at 1 (800) 308-4358 between 7 a.m. and 7 p.m. CST Monday through Thursday and between 7 a.m. and 6 p.m. CST on Friday. Or, you can submit an online contact form, and one of our surety specialists will get in touch with you right away. For more information from SuretyBonds.com, check out our Facebook, Twitter, Google+ and LinkedIn profiles. You can also peruse our YouTube video library and online answer forum.

At SuretyBonds.com, we understand that most business professionals don’t know about surety bonds until they need one. That’s why our experts go the extra mile to explain the intricacies of bonding, from what a surety bond is, to why you need one, to how much your bond will cost and everything in between. Today, we’ll answer some frequently-asked questions about surety bonds in part 2 of our 3-part series. Read part 1 here.

What is the difference between license and permit/commercial, construction and court bonds?

There are 3 categories of surety bonds:

• license and permit bonds (also called commercial bonds)
• construction bonds
• court bonds

License and permit bonds, also known more simply as “license bonds” or “permit bonds”, are a specific type of commercial bonding. Government agencies require business owners in certain industries to purchase these bonds before they can be legally licensed. They protect consumers by guaranteeing businesses adhere to laws and other regulations enforced by federal, state and local government agencies. Commercial bonds are typically purchased by companies and working professionals who need surety bonds for purposes unrelated to legal issues, construction projects or other contracted work. Most commercial bond types are used to reinforce laws such as license and permit regulations. They’re generally less risky for insurance companies to underwrite than contract and court bonds, so they’re relatively easy for most individuals to qualify for.

The terms “contract bond” and “construction bond” are essentially two different names for the same thing. A contract bond is a type of surety bond that guarantees contracts are fulfilled. If the contracted party fails to fulfill its duties according to the bond’s terms, the project developer can make a claim on the bond to recover financial losses. Although they can be used for many reasons, contract surety bonds are most commonly used in the construction industry to ensure projects are completed according to contract. For this reason, “contract bond” and “construction bond” are often used interchangeably.

Court proceedings often require certain parties to file surety bonds to verify their personal credibility and financial integrity both in and out of the courtroom. A bond might be required for one of many reasons, such limiting the potential financial loss following a court ruling or ensuring completion of a court-appointed task.

Although they fall into different bonding categories, the price you’ll pay for a license and permit/commercial bond, a construction bonds or a court bond is based on the following factors:

• bond type
• bond amount
• applicant’s financial credentials, in some cases

Do surety bond costs vary for different states?

Most surety bonds are regulated by various government agencies at the state level, so your required bond amount and, therefore, the premium you’ll pay for your bond varies by state and by bond type. Although the state you do business in does not directly affect the rate you pay (that is determined by your financial history), each state has its own surety bond amounts and requirements. For example, motor vehicle dealers in Alabama must post $25,000 surety bonds, while motor vehicle dealers in Michigan must post $10,000 surety bonds. This means that an an applicant in Alabama will pay more for his or her auto dealer bond than an applicant in Michigan with the same credit score will.

Does it cost to apply for a bond?

It does not cost anything to apply for a surety bond. If you’re not satisfied with your free surety bond quote, you’re not obligated to pay a dime. You’ll pay for your bond once you accept your surety bond quote and are ready to purchase your bond quickly, easily and accurately.

When do you pay for your surety bond?

Typically, you’ll pay your bond premium upfront before or on the effective date of your surety bond. In some cases, financing is available to break up your bond premium payments into smaller, more manageable amounts. Paying by credit card is the fastest way to ensure your payment is received so your bond can be issued quickly and easily. Checks are also an acceptable form of payment, but take a little longer to process.

Do you need to renew your surety bond?

It depends on the bond. Since many contractor bonds are project-based, they expire after the project is complete and there is no need to renew them. License and permit bonds oftentimes remain in effect for a fixed period of time or for as long as the bondholder’s license is valid. If there is an expiration date for the bond, you have to renew your bond before that date to remain in compliance with the laws of your state and industry. If you’re unsure about the terms of your surety bond, you can contact the government agency in charge of licensing and registration for your industry to clarify.

Have more questions? Our experts are ready to assist you with all of your bonding needs. Give us a call at 1 (800) 308-4358 between 7 a.m. and 7 p.m. CST Monday through Thursday and between 7 a.m. and 6 p.m. CST on Friday. Or, you can submit an online contact form, and one of our surety specialists will get in touch with you right away. For more information from SuretyBonds.com, check out our Facebook, Twitter, Google+ and LinkedIn profiles. You can also peruse our YouTube video library and online answer forum.

At SuretyBonds.com, we understand that most business professionals don’t know about surety bonds until they need one. That’s why our experts go the extra mile to explain the intricacies of bonding, from what a surety bond is, to why you need one, to how much your bond will cost and everything in between. Today, we’ll answer some frequently-asked questions about surety bonds in part 1 of our 3-part series.

Why do you need a surety bond?

Surety bonds serve as a barrier of entry to certain industries. Specifically, surety bonds guarantee that business professionals conduct business ethically and in accordance with the law. As such, most surety bonds are required by government entities responsible for an industry’s licensing and registration. These bonds are generally referred to as license and permit bonds.

Some bonds, like contract bonds, janitorial service bonds and business service bonds are not required by a government agency, but instead by a construction project owner or the business professional himself.

If you’ve been told you need a surety bond, you must post the bond and submit it to the obligee (the entity requiring the bond) prior to registering for your business license or beginning work on a construction project.

How much does a surety bond cost?

The cost of a surety bond varies depending on several factors, including:

• bond type
• bond amount
• applicant’s financial credentials, in some cases

Certain bond types carry more risk than others. Typically, higher-risk surety bonds, such as auto dealer bonds, require a review of the applicant’s personal credit report and, at times, other financial credentials. Lower-risk bonds, such as notary bonds, can usually be issued instantly without a credit check for a flat rate. Some surety bond are issued for multi-year terms.

For surety bonds that are subject to underwriting consideration, standard-market rates typically fall between 1% and 3% of the total bond amount. So, a $10,000 surety bond could cost a qualified applicant as low as $100-300. Applicants with lower credit scores can expect to pay $5,000-10,000 for their bonds.

Do surety bonds cost more for new business owners?

There is no bias held against new business owners when it comes to getting bonded, so new and seasoned business professionals can expect to pay similar premium rates depending on their credit reports and other financial credentials. Often, owning a business can help build credit over time, so business owners might see their credit scores improve as their business ventures mature. Still, SuretyBonds.com offers a bad credit bonding program through which we approve 99% of applicants for the surety bonds they need quickly, easily and accurately.

Can’t you just buy an insurance policy?

No, insurance and surety bonds are two completely different realms of coverage.

Insurance involves a negotiation between an insurance company and an individual to help relieve the financial impact of unexpected problems that result in severe financial burdens for that individual. There is car insurance for accidents, home insurance for property damage from natural disasters, and more.

A surety bond  is an agreement between three parties: the principal (bondholder), obligee (entity requiring bond) and surety (underwriting company). Surety is considered to be very low-loss coverage because bonds are put in place to ensure that business professionals conduct business according to the rules and regulations of his/her state and industry. If the principal fails to comply with the terms of the surety bond contract, a claim can be filed against the bond. If the claim is proven, the bond protects the state (obligee) and/or consumers from financial loss.

Insurance transfers financial risk; surety helps ensure performance in compliance with the terms of the bond.

Have more questions? Our experts are ready to assist you with all of your bonding needs. Give us a call at 1 (800) 308-4358 between 7 a.m. and 7 p.m. CST Monday through Thursday and between 7 a.m. and 6 p.m. CST on Friday. Or, you can submit an online contact form, and one of our surety specialists will get in touch with you right away. For more information from SuretyBonds.com, check out our Facebook, Twitter, Google+ and LinkedIn profiles. You can also peruse our YouTube video library and online answer forum.