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 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.