From time to time, people struggle to qualify for the surety bond they need. Sometimes people have even been bonded before - some for years - but now they're struggling to qualify for a bond renewal. What people often don't realize is that there are reasons they might not be qualified for a bond, some of which might not even be their fault.
One reason could be new bonding requirements established by various government agencies. Generally speaking, the recent economic downturn has greatly tightened qualification standards. Unfortunately, this hurdle cannot be avoided. However, you can improve the likelihood that you'll be able to qualify for the bond you need.
If you have a low credit score or a score that has fallen since you purchased your original surety bond, you might not be able to qualify for renewal or initial approval. Raising your credit score by just a few points can give you an extra push toward approval. Another problem that might hinder your approval is a loss of business assets. For example, if your cash deposits have diminished since you purchased your original bond, you might not be approved. Finally, previous bond claims against you as a surety bond holder could also keep you from getting a bond.
Fortunately there are a few steps you can take to reach qualification. If you haven't already, talk to a nationwide bonding agency. Although you might have been working with the bond salesman down the street for the past few years, he simply does not have the connections to multiple insurance carriers that nationwide bond companies have. Working with a large brokerage agency broadens your search and gives you the chance to get approved at a better rate. If your credit score isn't as good as you'd like, that's not a problem for large surety companies, either. You just need to work with an agent who is approved to issue bad credit surety bonds.
If you qualify for the bad credit surety bond market, you might have to provide a letter of credit, a personal promissory or a cash collateral before you can get your bond.
- A letter of credit is a legal document issued by the bank on your behalf to guarantee your financial obligation to the bond.
- A personal promissory is necessary when qualifications are based on a company that has poor business financials. In these situations bonding agents require a personal promissory stating that you'll be responsible for the company's finances.
- A cash collateral might be required in addition to the premium you paid. This functions as a sign of good faith that you personally back the bond. You'll get your cash back as long as there are no problems with your bond.
Just because you can't get approved for the bond you need right away does not mean you should give up. You still have plenty of options. Avoiding your bonding obligations is not a good idea, either. Failing to be bonded according to state requirements could result in penalty fines, license revocation or even legal action.
Still have questions?
Please feel free to visit our Surety Bond help page if you have any additional questions. Or, contact an experienced surety specialist at 1 (800) 308-4358 to ask a question or get a quick, easy and free surety bond quote.