Purchasing a surety bond can prove challenging for entrepreneurs and new business owners looking to get a bond for the first time. Unfortunately, many professionals don’t realize that their personal and professional finances have a heavy influence on their ability to get approved for a surety bond, as well as the cost calculated to purchase it. Understanding how your finances affect your ability to get a surety bond can help ensure that you get a competitive rate for the surety bond you need.
Getting a Surety Bond
Before you contact a surety bond provider you should confirm the necessary penal sum that the obligee is requiring of you. A basic understanding of the type of surety bond you need can help you fill out your surety bond application more quickly and accurately, and in turn make it much easier for a surety provider to get you the bond you need as soon as possible. Once you know the basics of what kind of surety bond you need, you can fill out an application online in just a few minutes. Then a surety bond specialist will get back to you with a price quote in just a couple of business days.
Most surety bond companies will only issue a bond to applicants that they believe to be professionally reliable and financially stable. So, the agency’s underwriters will conduct a thorough background check to determine an applicant’s professional reliability before approving them for a bond. Depending on your profession, background checks could include a review of your credit score, financial history, and work record. These factors affect the likelihood that the surety’s underwriters will approve you for a bond as well as the premium you will pay to purchase the bond later on.
Surety Bond Costs
The premiums that principals pay to secure their surety bonds vary greatly due to a number of variables. The first factor that affects a premium is the bond amount (or penal sum) that the obligee is requiring you to secure. From here your individual premium is calculated based on your credit score, professional work record, and any other financial records that could help a surety provider determine your financial stability and reliability as a professional.
If your credit score is above 700 your premium is probably going to be somewhere between 1 and 5% of the bond’s penal sum. So if you’re looking to purchase a $25,000 surety bond, you’re looking at a $250 to $1,250 premium. The lower your credit score, the more you will pay for your bond. Applicants with poor credit could pay a premium in an amount that’s up to 25% of the bond’s penal sum. Furthermore, surety providers sometimes require additional upfront collateral for those with exceptionally bad credit.
Paying for Your Surety Bond
Once the surety’s underwriters have approved you for a bond and you’ve accepted the proposed premium, they’ll walk you through the rest of the process step by step. Most of the time principals pay their full premiums upfront. Sometimes a surety provider can offer principals a finance plan if they’ll be paying a large premium. This is especially convenient for applicants with poor credit who might initially be unprepared to pay a high rate for their bond.
If a government agency is requiring you to maintain a bond, the decision to purchase one is unavoidable no matter how expensive the premium may be. Although shopping around for the best surety bond rate for your needs is a good idea, remember that you will inevitably need to purchase a surety bond before you can officially be licensed to do business. For small business owners struggling to get a surety bond, the Small Business Administration’s Office of Surety Guarantees offers financial assistance.
This article was provided by Kristen Bradley at SuretyBonds.com, an agency that issues surety bonds to entrepreneurs and other professionals nationwide. SuretyBonds.com aims to give new professionals an insight into industry regulations so they can get their enterprises started off on the right foot.