Surety Bond Rates
We've talked a lot about surety bonds around here, and by now you probably know the basics behind the bonding process. Just to recap, the obligee requires the principal to secure a surety bond before beginning work, and the principal works with a surety provider to get the bond.
When a surety provider issues a bond, the business financially backs the quality of work to be done by the principal. So every time a surety provider like SuretyBonds.com issues a bond, he risks losing his investment if the principal were to break the bond's contractual language and harm the obligee.
What Determines The Price?
But what determines the price of the bond? Several factors come into play, and bond rates vary widely based on a number of criteria. The first indicator of a bond's price is the specific type of bond to be issued. Furthermore, the majority of the bond's cost depends on the bond amount needed, as many fees are calculated as a percentage of the bond's total worth. This percentage varies based on bond type, as notary public bonds are typically only for $5,000 to $10,000 whereas a performance bond can be for millions of dollars. Since the surety could lose more money from costlier bonds, they obviously charge much higher fees to issue them.
The jurisdiction in which the bond will be maintained also affects the bonding fee, as each bonding market has different regulations to adhere to and premium expectations to meet. For example, the bonding fee for getting a surety bond in Missouri will differ from the cost for a surety bond in Florida.
After establishing the bond amount, the surety provider determines a base premium rate by calculating risk factors that are similar to those evaluated for insurance policies (though surety bonds are not a form of insurance). Each surety company has its own proprietary formula and method used to calculate the costs associated with various risks.
Before issuing the bond, the surety provider examines the applicant's work, credit, and financial history to determine his reliability.
The surety thoroughly inspects the applicant's finances, which will heavily affect the bonding fee. Applicants should be prepared to undergo an extensive financial examination that could include a financial report audit and complete credit history review.
Applicants with subpar credit can expect to pay a fee that's nearly twice as much than those who have good credit, as the surety takes a greater risk in backing entities that have questionable financial security. Some surety providers refuse to work with individuals or businesses with bad credit, leaving unstable principals to look for providers like SuretyBonds.com who have faith in less-than-desirable clients.
If you're considering opening a business and need a surety bond, do your homework. Ask others working in your industry how much they paid for their bonds. Because bond fees vary from company to company, shop around to find the right surety bond company, and don't be discouraged if the first price you're quoted seems high. Keep researching and you're bound to find the bond you need for a competitive price.
