You're starting a new business, or you've been named as the executor for a family member's estate. What do these two situations have in common? Both may call for a surety bond.
Surety bond products provide financial protection to customers, beneficiaries, and many others who are in a vulnerable financial position. There are many different products, and they each have different requirements and a different cost.
What is a Surety Bond?
A surety bond is a product that protects those who could experience financial hardship due to your decisions. If you're a business owner who's embarking on a construction project, you need to seek a surety bond to reassure your customer that you have a track record of completing projects on time and that their money will not be tied up in an incomplete construction project.
If you're the guardian of a vulnerable individual, the individual needs protection in case you make financial or other choices that are not in his or her best interests.
In all of these situations, the vulnerable person or people are called the obligee, and you are the principal. You seek out a surety company to check your financial history and your references and to provide reassurance that the obligee will receive compensation if he or she experiences financial hardship due to your decisions.
What Kinds of Bonds are There?
There are many different types of surety bonds. You may need a license and permit bond. These bonds are for individuals in specific industries, such as mortgage licenses or contractor licenses. They show all of your clients that you're reliable and responsible and able to follow through on your responsibilities.
If you're involved in legal proceedings, you may require a court bond. These bonds show that you're able to be a guardian or executor of an estate or that you'll show up to a scheduled court date. Other bonds are project-oriented, such as a bond that you secure prior to signing on for a large construction contract.
How Much do Different Bonds Cost?
Depending on the bond you need, you will pay a different cost. Some smaller bonds such as executor bonds have a relatively set rate that can be fairly low. Other bonds have costs that are a percentage of the total project cost, such as a performance bond for a construction contract.
Still other bonds for businesses depend on the size of your business, how many locations you have, and how much business you did in the last fiscal year. Bond costs vary dramatically depending on the type of bond you require.
What Influences Bond Costs?
Many different factors influence bond costs, but the most prominent are your business history and your credit history. If you're securing a bond as an individual, you'll need to provide information about your personal finances and credit rating.
If you're getting a bond as a businessperson, you may need to provide a business history, information about key people in your company, and references. The results of this research will influence the percentage rate that you receive on your bond. Bond costs can vary between less than 1 percent and more than 3 percent of the total posted bond amount.
Are you looking for more information about the types and costs of different bonds? Surety Solutions can help. Watch our video library and learn more about the ways in which surety bond products can help you.