Many people don’t realize how much it takes to get a surety bond and how vital they are. Businesses and individual professionals outside of the surety industry often do not know about their existence or understand what people do for a living in the risk management field. This article will take you through some interesting facts about this exciting business that you need to know.
What is a Surety?
A surety is a financial guarantee that promises to pay if someone fails to meet an obligation to another person, company, or government agency according to their agreement contract. A good example from many surety bond experts would be when someone enters into an agreement with the City of Fort Worth to pave certain roads and does not complete the project within the time frame laid out in their contract. In this case, the City would need to file a claim with the surety company who gave them a bond and it is up to the surety company to investigate and perform due diligence on both parties to determine how much of their bond will be used.
How are Surety Bonds Written?
Surety bonds are not meant to be an investment but that does not mean you should invest recklessly. When someone pays for a surety bond they are paying for peace of mind and protection against any possible consequences with their project or contracts so it is important to do everything in your power to pay as little as possible, yet still receive all the protection you need.
This can be done through different types of risk management tools such as applications, credit references, financial statements, prior projects, etc… If the client has previous experience then they will most likely have previous references that can verify their credibility and reliability when it comes to completing projects on time. There is a wide range of information and risk management tools that surety companies use to determine rates, but in the end, it all comes down to your credit score. Surety companies typically only deal with A-rated insurance companies when underwriting bonds so your credit score will greatly affect how much you pay for your surety bond.
How Long Does It Take To Get A Surety Bond?
Having a surety bond ready in a day shows that a company is efficient and effective at what they do, but typically bonding will take anywhere from 15 minutes to 3 days depending on the size of the contract and integrity of the contracting party. Having your documents turned around quickly can get you signed up and working within hours of getting your bid accepted by your client so you need to stay on top of things and be available when it comes time for underwriting. The last thing you want is to get the news that your bid was accepted and then have to wait for days on end because your surety company is backed up.
How To Find Surety Bonds For Your Business – Using An Agent Or Writing Their Own?
Surety companies are insured against claims whereas insurance companies are not. This means that if you are looking for a surety bond then you will want to go through a bond expert who will be able to answer any questions you may have regarding your project. They spend years honing their craft so they know what it takes to make things simple for you. Many small-time general contractors think that writing their own policy will save them money but in the long run, it will end up costing them more because the surety companies and agents know what they are doing and understand how to get you insured while saving costs where possible.
The agents make their money by charging a fee for their services which is oftentimes passed onto the client but this is done in a way that cuts out unnecessary spending so your rates will still be lower than if you wrote your own policy. Surety bonds can seem complicated at first due to all of the different variables that come into play when pricing them however an agent can help with any issues or questions you might have regarding anything from application information, percentage charges, etc… So do not try and go it alone because using a surety company is far more advantageous even though it may initially seem more expensive.
There are a number of factors that determine the rate at which you will be charged for your BIPD bond, but one thing is certain: if you do not have a high credit score then the rates will be high. Surety companies typically only work with A-rated insurance companies so your credit score will affect how much bonding you require as well as what type of contract you can secure. Having an agent help write your policy can greatly reduce costs and fees so it is highly recommended to go through an insurance company as opposed to writing your own policy as there are many different variables involved in pricing up a bond.