Frequently Asked Questions (General)
- What is a surety bond?
- What is the process to obtain a bond?
- How do surety bonds work?
- What good is a bond if I have to pay for claims?
- How much do surety bonds cost?
- Why do I need a surety bond?
- Who is the obligee?
- What is a blank bond form and where do I get one?
- What is the turnaround time?
- Why does my spouse have to sign the indemnity agreement?
- Do you work with brokers?
Definition: In the simplest terms, a surety bond is a guarantee. What the bond guarantees varies depending on the language of the bond. It is a form of credit, not insurance.
To start the process you need to apply. Your agent will usually have an approval for you anywhere from that same day to 4 business days. You will then be given your premium cost and an agreement between you and the bonding company. The bond is then issued 1-2 business days from receipt of payment and the agreement (original agreement is often required).
The principal (you) pays a percentage of the bond amount called a bond premium. In return, the surety extends “surety credit” to make the required guarantee (the bond). A claim can arise when the principal does not abide by the terms of the bond. In the event of a claim, the surety will investigate to ensure it is valid. If the claim is valid, the surety will look to the principal for payment
of the claim and any associated legal fees.
A bond is not insurance, it is a form of credit where the principal (you) are responsible to pay any claims. The alternative to a bond is to post cash or a letter of credit. Surety bonds are advantageous, as they typically require no collateral, which frees up capital. Bond premiums are also similar to fees for letters of credit and are typically less than one would earn making
conservative investments with the available capital.
Bond premiums vary greatly depending on the applicant, the bond type, surety, and the obligee. Just like other forms of credit, everyone does not receive the same rate. Standard market rates are typically anywhere from 1-3%, while higher risk markets can range anywhere from 5-20% of the bond amount.
Simply because a government authority or private entity is requiring the bond in order for you to operate. The bond ensures you will follow their guidelines.
The obligee is whoever is requiring the bond of you. You are not the obligee. For example, the obligee for a contractor would be whoever they are doing the work for. The obligee for a license bond (e.g. auto dealer or mortgage broker) would be whoever they are filing their license with.
It is a blank copy of the bond that you are required to post. It states exactly what the bond is guaranteeing. Your bond agency will use it to create the original bond by completing the blanks on the form, signing on behalf of the surety, and attaching a power of attorney. You need to obtain a blank copy of the bond form from the obligee.
Approval time varies depending on the type of bond and the program the applicant falls under. Some are approved immediately, others can take up to 1-4 business days. Bond issuance is typically 1-2 business days from receipt of payment and anything else required by surety for issuance of the bond.
Bonding companies have several reasons why they would like your spouse to personally guarantee the bond. Keep in mind, a bond is a guarantee of something. The bonding company does the best they can to underwrite your policy, but have no way to gauge your character. A good way to do this is to have your spouse personally guarantee it, as they know you best. Spouses are also required to sign, as a married couples have joint assets, which may have to be sought after in the event of a claim.
We do accept applications from brokers. Our commission schedule varies by bond type and volume of the particular broker, but is typically 10%. You can send you clients application online with your agency information to begin submitting applications immediately.