Surety bond cost is influenced by many factors. Some factors can be controlled, while others cannot. Here are the top influences of surety bond cost and what you can do about them.
12 Influences of Surety Bond Cost
#1: Type of Bond
- Why? All surety bonds are not created equal. Certain bonds are inherently more risky than others. A Used Motor Vehicle Dealer Bond, for example, is more risky than a Notary Bond, and the surety bond cost will always be more.
- How to get around: None.
#2: Amount of Bond
- Why? Surety bond cost is dependent on the total bond amount; the price you pay is a percentage of the total. This means that a $10,000 bond will always cost more than a $1,000 bond.
- How to get around: None. (Unless you can lower your bond amount in a Conservatorship Bond example. More on that here.)
#3: Personal Credit History
- Why? One of the biggest determinants of surety bond cost is credit history. The better your credit, the less you’ll pay for your bond.
- How to get around: Fix personal credit issues. Pay off outstanding payments like judgements, tax liens, and especially overdue child support. (Most surety companies will not issue a bond if you have overdue child support.) Learn what affects your credit score and how to manage your credit.
#4: Business Credit History
- Why? Your business credit history is just as important as your personal credit history.
- How to get around: Pay on time and above the minimum needed. Don’t seek out new credit cards to pay off old ones. Learn how to manage your business finances well and have a plan for moving forward.
- Why? Your past and current finances are a direct representation of how you have managed your money in the past. Surety companies use this information to project how you will perform in the future.
- How to get around: Improve your working capital by refinancing short-term debt into long-term debt. Provide reliable and strong references to the surety when needed. Have an organized budget currently in place.
#6: Industry Experience
- Why? Sureties will want to know you well and know what you are doing. Bonding a first-time business owner who has never run a company is riskier than bonding someone who has valid work experience from the past.
- How to get around: It’s hard to prove what you don’t have. Provide strong references or a resume if the surety needs more proof.
#7: Time in Business
- Why? Similar to industry experience, time in business is a direct correlation that you know how to stay afloat in your industry, even in hard times.
- How to get around: None.
- Why? Character is a huge factor in determining surety bond cost. Character is described as having a positive reputation in both in the personal and business world. Your reputation, references, how you are known in your community and business-realm are all aspects that can be taken into account.
- How to get around: Provide positive references when needed. Be honest up front. If you know there is something that the surety might find disarming, be transparent. Honesty can go a long way.
#9: Past Convictions
- Why? Sometimes sureties need to run background checks before approving an applicant for a bond. While a past conviction won’t automatically disqualify you, it can make it harder for you to get bonded and increase your surety bond cost.
- How to get around: Know your record. If you were convicted of a previous felony, be able to provide the surety with court documents that show your civil rights have been restored. And most of all, be honest up front and don’t hide anything.
#10: Loss of License
- Why? Especially important to license and permit surety bonds, loss of a license doesn’t look good to a surety. For example, if you are trying to get a California Motor Vehicle Dealer Bond but previously lost your Arizona Motor Vehicle Dealer License, you are going to have a hard time getting approved.
- How to get around: Be honest. If you explain what happened, the surety might be understanding.
#11: U.S. Citizenship
- Why? Non-US citizens are viewed as higher risk because they have no physical ties to the US that would keep them here to pay a bond claim.
- How to get around: Get your US citizenship.
#12: Surety Bond Company
- Why? Not all surety bond companies are alike. Some will have a stricter evaluation process than others, and some have higher premiums.
- How to get around: Do your research and choose a reliable company to ensure you are getting the lowest rate for your bond.