Answers to Common Surety Bond Questions
By Danielle Rodabaugh, SuretyBonds.com Director of Education
Surety bonds can be confusing. When purchasing their first bond, customers often have questions about what surety bonds are, how they work, and why they need them. To help you along your way, surety experts have developed this guide to answer the most frequently asked questions customers have about bonding.
Why do I need a bond?
Tens of thousands of surety bond types exist, so the exact reason that you need a bond will vary depending on the bond you need. To put it simply, though, you probably need a bond to guarantee you’ll do your job according to law or complete a task appropriately.
Will my bond protect me?
In most situations, the answer is no. The protection provided by a surety bond benefits its obligee, not the principal who purchases it. So when you buy surety bond insurance, it’s for the benefit of others, not yourself or your business. If you mess up by breaking the bond’s terms, harmed parties can make a claim on the bond to recoup their losses.
What is an obligee?
A bond’s obligee is the person or government agency that requires you to get a bond. By purchasing a bond, you obligate yourself to fulfilling a task for that entity. More specifically, the obligee receives the protection provided by your bond. In most cases, the obligee is a government agency. In construction, the obligee is the project owner/developer, and with court bonds the state the court is in acts as the obligee.
How much does it cost to get a bond?
Surety bond costs vary for a number of reasons, most notably:
- bond type
- bond amount
- where the bond will be issued
- contractual risk
- applicant’s financial credentials (which can include credit scores)
Applicants who have credit scores above or near 700 qualify for the standard bonding market, which means they typically pay a premium that’s 1 to 4% of their surety bond amount. So getting $10,000 of coverage would cost approximately $100 to $400, and getting $25,000 of coverage would cost $250 to $1,000. The best way to determine what you’ll pay is by getting a free, no obligation price quote from a surety that’s licensed to issue bonds in your state.
I have bad credit. Can I still get a surety bond?
The exact answer depends on what type of surety bond you need. Those with credit scores below 650 typically fall into the nonstandard (or bad credit) bonding market. If you need a risky bond type, such as a contract bond for a construction project, you might not qualify. Fortunately, some underwriters do specialize in writing bonds for principals who have credit issues. If you have bad credit and are approved for a surety bond, you should expect to pay a premium that’s 10 to 20% of the surety bond amount. This means $10,000 of coverage would cost between $1,000 and $2,000, and $25,000 of coverage would cost between $2,500 and $5,000.
Will my surety bond credit pull affect my scores?
Credit pulls for bonds aren’t as invasive as car payment or mortgage loan credit reviews. Most of the time credit reviews for bonds only require a soft pull, which means a minimal impact on your credit score for a short period of time.
Why does my spouse have to sign my bond?
A surety bond is a financial guarantee. In most cases, once you’re married your financial obligations become your spouse’s financial obligations and vice versa. Having your husband or wife indemnify your surety bond is how the underwriter ensures state laws regarding financial accountability are being followed when issuing your bond.
How long will it take to get my bond?
In most instances, surety experts can issue a bond within 24 hours of the initial application. The turnaround time can take longer for riskier bonds that require more complicated underwriting processes, such as contract bonds for construction projects. However, some bond types, such as notary bonds, can be issued instantly over the phone. If you need your bond ASAP, you should work with a surety provider that provides overnight shipping.
What do I do with my bond once I get it?
You’ll have to file the official surety bond form with whatever obligee requires it. Your surety underwriter will not file it on your behalf. This means if the deadline for your bond is the first of the month, you should give yourself plenty of time to apply for the bond, pay for the bond, and receive the bond via mail.
What if there’s an error on my bond?
Contact your surety provider immediately. Because bonds are legally binding contracts, obligees will not accept erroneous forms — even those with a simple typo. This is why you must provide 100% accurate information when applying for your bond. All the appropriate signatures must be present on the form as well. If there is a problem with your bond, your obligee might accept a rider that can be attached to the original bond form. In other situations the surety will have to destroy the original bond form and then issue a completely new bond.