How Much Does a Surety Bond Cost

How Much Does a Surety Bond Cost

We must first understand what a surety bond does as well as the factors that are involved that will determine the rate as well as obtaining a surety bond approval. The surety company will evaluate your credit, experience, and financials. The process is very similar to apply for a business loan. Rates vary on a multitude of conditions such as which state is it for, what type of surety bond is needed, what is the financial outlook for the company or individual, how much experience does the business have and of course, which surety company is writing it.

Most companies are looking for a credit score above a 670 with no public records, collections, or slow pays. They also review your business financials to make sure that your company has a positive net income and worth. The surety company requires that your financial equity be at least five times the bond amount. Therefore, if you are applying for a $50,000 Surety bond the surety is looking for a net worth above $200,000. Keep in mind this is different for each bond type and state because some types of bonds have a higher loss ratio than other types of bonds. Remember that you are indemnifying the surety so the surety wants to make sure you are able to pay a claim if one occurs. If you meet these requirements and the type of surety bond is not considered hazardous such as a financial guarantee than you should be able to qualify for a preferred rate of 1% to 3% of the surety bond amount. Keep in mind that each surety has a minimum premium for a bond, which is usually $150.00 to $250.00, but you only run into these scenarios if your bond amount is under $25,000. So using a $25,000 surety bond as an example and the rate was at a 3% the cost would be $750.00.

Unfortunately, not every person or company can meet the surety requirements for preferred rates or even qualify for bonding, especially with the surety bond market tightening due to an influx of claims. Many Surety Companies will require collateral or simply decline your submission if you cannot qualify. Fortunately, there are still programs that will not decline your bond due to credit or other conditions they will just charge a higher rate.

Here is how is how it works if your business does not qualify for normal bonding the rate can be anywhere between 4% to 25% rate this is only for License and permit bonds. So if you where applying for a $100,000 Surety bond and your credit, financials or experience do not meet the surety companies requirements instead of declining you the rate will be higher for an example if you where approved at a 5% rate the cost would be $5,000.00 with no collateral. You may say to yourself well I would rather post the money with the state instead of paying a little more for my surety bond, you can of course do that but keep this in mind the state will not release your collateral until the statue of limitations is up. Therefore, after your bond is no longer needed or you are no longer in business the state will not release the collateral for several years.


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Author: Regular Articles

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