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High Risk Surety Bonds

For years, companies and individuals lacking strong financial credentials struggled to get surety bonds required by government agencies. Over time, a new market emerged to cater to these applicants.

Today, a handful of surety carriers offer high risk surety bonds for those who don’t meet the standard market prerequisites needed for surety bonds. High risk bonds allow applicants with less-than-stellar credit to secure the bonds they need to run their businesses.

High risk surety bond costs

Bad credit, past bankruptcies and outstanding liens are all factors that keep applicants

from qualifying for standard surety bonds, which is why high risk bonds cost more than conventional surety bonds. The final rate will depend on several key factors, including the specific applicant and type of bond. In general, rates for high risk surety bonds are anywhere from 5 to 20 percent of the bond’s penal sum, depending on the individual applicant and the surety’s underwriting capacity.

High risk surety bond collateral

Some surety providers require applicants to post collateral in additional to paying their bond premiums. High risk bonds can require a cash collateral equal to the full penal sum. Whereas insurance providers expect claims to be made on policies, surety providers try to avoid any possible claims. Because surety providers don’t consider financial losses when writing their premiums, they must ensure that principals have the financial means necessary to provide compensation if a claim should be made on a high risk surety bond.

Financing high risk surety bonds

In recent years, surety providers have been able to offer special financing plans for persons paying high premiums for their high risk surety bonds. The act of financing a bond though, means the overall cost of the bond increases in the long run. Although financing could be helpful for those who need high risk surety bonds, these principals should recognize that it’s cheaper to pay bonds with one payment.