Surety Bonds - FAQ

Q: What does a surety bond cost?

A: It's difficult to pinpoint an exact cost or a common charge for bonds, as their cost depends on a host of factors, including the applicant and its financial health, the type of bond and the surety. Premium costs for bonds might range from 1 to 4 percent. But those who wind up categorized in the high-risk market might pay anywhere from 5 percent to 20 percent of the bond amount. The nature of bond underwriting is fluid and rapidly changing, given economic realities within a given industry and the market as a whole. Unlike with insurance, there is little expectation of loss with surety bonds. Because of that, the bond premium is typically meant to cover prequalification services, namely the underwriting.

Q: How do I apply for a Surety Bond?

A: You can apply now by clicking HERE The experts at SuretyBonds.com are available to help you apply for a surety bond and to answer your bond-related questions.

Q: What determines whether I get the bond I want?

A: Surety companies will examine contractors methodically before issuing a bond. Commercial bonds, such as license and permit bonds, and still underwritten but not with the same scrutiny as contract bonds. They will typically scrutinize a company's financial strength and credit history; its references, reputation and ability to perform current and future work; and the firm's management structure and hierarchy, just to name a few aspects. Even those with bad credit can obtain surety bonds. But remember that high-risk bonds will often come with a significantly higher premium cost.

Q: Do you offer bonds in all states?

A: Yes. We provide bonding opportunities in all 50 states. Regulations and requirements differ at both the state and municipal levels, so be sure to learn about the specific mandates for your industry and geographic region.

Q: I am a new business startup. Can I still get a Surety Bond?

A: Yes. In fact, depending on your business and its location, you may be legally required to obtain one in order to operate within the law. Bonds are often filed to obtain a license to operate. You may also be interested in obtaining fidelity bonds, which are different from surety bonds. Given the wide range of business types and bonding requirements across the country, we urge new business owners to direct questions and inquiries to the experts at SuretyBonds.com.

The surety industry offers programs and resources for emerging businesses in need of bonding. The Surety & Fidelity Association of America developed the Model Contractor Development Program to help new contractors gain a foothold. Click [here] to learn more about the SFAA program.

Q: Can I get a Surety Bond with a poor credit score?

A: Yes. Sureties will scrutinize your application during the underwriting process, but poor credit is not an instant disqualifier. Surety companies will bond entities they deem "high risk," but bond premiums in that range will likely exceed the industry standard. A high-risk classification might mean you pay anywhere from 5 percent to 20 percent of the bond amount in premium.

Q: I don't really know what kind of bond I need. Can you help me?

A: Yes – that's what we're here to do. There are two major branches of bonds: surety and fidelity. Surety bonds offer financial security for communities, developers and other stakeholders that contractors will do their work, pay subcontractors and perform other mutually agreed-upon duties.

Unlike surety bonds, which are typically imposed on businesses, fidelity bonds are sought by them, often to protect their interests. These bonds are more akin to insurance. For example, businesses can obtain fidelity bonds to protect against loss in the face of employee theft. There are hundreds of bonds available on the market. We're happy to talk with potential clients about their unique bonding needs. Click [here] to learn more.

Q: What's the difference between a surety bond and insurance?

A: Surety bonds are not insurance. Insurance is basically a risk-transfer tool between two parties where individuals exposed to similar risk contribute premiums to a pool. Surety bonds are three-party agreements where loss is not expected and premiums typically cover the cost of prequalification services and underwriting. A bond is more like a type of credit where the principal is on the hook for claims payments in the event of default.

Q: What do the terms surety, obligee and principal mean?

A: Surety bonds are agreements among three parties: a surety company that backs a bond, an obligee (the owner, often a government or municipal agency) and the principal (a contractor or business in need of a bond).

Q: How quickly can I obtain a surety bond?

A: The speed will depend on several factors, including the type of bond sought and the underwriting process and restrictions of a given surety company. Some sureties can approve bonds immediately, while others take anywhere from one to four business days. The actual bond is typically issued within a day or two of payment.

Q: Is there a difference between contract and commercial bonds?

A: Yes. Contract bonds, or construction bonds, are strictly for contractors. They include a host of different bond types that govern the payment, execution, maintenance, performance and other elements of a construction project. Commercial bonds are often called non-contract bonds because they not guarantee specific contracts or elements of contracts. Consumers will often hear the phrase "license and permit bond," as these types of commercial bonds represent a major chunk of the sector. Commercial bonds can cover anything from mortgage brokers and auto dealers to telemarketers.

Q: Are there laws that mandate the use of surety bonds?

A: For contractors, certain federal public works projects require a surety bond. The Miller Act of 1935 remains the federal standard for mandating surety bonds on federal public works projects. Bonds are required for all contracts worth more than $100,000, and payment protection is mandatory for those in excess of $25,000. Most states have passed similar laws requiring risk mitigation and bonding for public projects.

Most states and local municipalities have enacted similar pieces of legislation that require contractors to obtain surety bonds for public projects above a certain cost. Private developers and companies may also require contractors and subcontractors to obtain bonds.