Small Loan License Surety Bonds

The small loan industry in the United States is strong right now, with recent financial changes requiring many individuals to take out loans, either to consolidate debt already acquired or to fulfill current financial obligations. With the credit industry in general under increased scrutiny by the media and the government, lenders are looking for ways to reassure their borrowers that they are receiving fair and legal loan products. Those who hold a small loan license surety bond can do so without hesitation.

Like many other types of surety bonds, the small loan license surety bond is executed primarily to protect the consumer from fraudulent or otherwise illegal activities on the part of the lender. The small loan license surety bond is just one of a variety of safeguards in place to ensure that borrowers receive loans which adhere to federal, state, and local laws regarding lending, and can provide a financial incentive for the lender to perform according to these laws. The bond prevents the lender from charging excessive loan fees, interest rates, or making predatory loans to individuals.

Lenders purchase a small loan license surety bond from a company who specializes in these bond sales (or, less frequently, from their insurance provider, though it's important to note that surety bonds are not insurance in any way) and buys them at the request of a third party who will receive a settlement of up to the full face value of the bond should a valid claim be filed against it.

Small loan license surety bonds are usually very inexpensive, owing in part to the fact that most states only require that small loan companies are bonded for about $1,000. The small loan company will have to submit to and pass a credit check and a review of their financial statements by the surety bond company to make sure that they are financially sound enough to pay the full face value of the loan if necessary since, unlike insurance coverage, the company who took out the bond is required to pay the value of it. Bonds do exist for companies with poor credit records, but these bonds are generally executed through special, high risk bond companies making them more difficult to find. Additionally, since a business with poor credit represents a larger risk for the bond company, available bonds can be significantly more expensive and have stringent qualification requirements.