Are you curious about what a surety bond program is? Have you been interested in applying for one but have no idea what you are doing?
Well, here are 4 things to know about the surety bond program:
The surety bond program helps small businesses in winning contracts by providing the customers with a guarantee that the work that they want to be finished, be completed. There are many public and private contracts that require for a surety bond.
- How Surety Bond Works
Generally, a surety bond is achieved by bringing three parties together in a mutually, legally binding contract. The three are as follows:
- Principal
This party is the individual or business that purchases the bond to guarantee the future work performance.
- Obligee
This person or business is the one that requires the bond.
They are typically government agencies working to regulate industries and lessen the likelihood of loss financially.
- Surety
This is the insurance companies that backs up the bond, They will provide a line of credit in case the principal falls short on their end of the contract.
- How to Qualify for a Surety Bond Program?
There have been times when people struggle to qualify for a surety bond. Sometimes there are other reasons as to why they aren’t qualified that may not even be their fault.
- A Letter of Credit
It is a legal document that is issued by the bank on your behalf, that guarantees your financial obligation to the bond.
If you have a low credit score, you might not be qualified for a renewal or initial approval, if you have that problem, then the little extra push that could be needed is raising your credit score by just a few points.
- Personal Promissory
A promissory note or letter is necessary, especially when the qualifications are based on a company that has poor business financials. This requires a personal promissory stating that you will be responsible for the company’s finances.
- Cash Collateral
A cash collateral might be required in addition to the premium that you pay. This functions as a sign of good faith that you will personally finish paying your bond and that you will stand by the bond. The collateral will be given back to you as long as there are no problems with your bond.
- How to Apply for a Surety Bond
- Determine the bond type and the amount you need.
This depends on what state you are looking to get bonded with seeing as each state has their own bonding requirement. The cost of your surety bond is typically between 1-5% of the total amount of the bond.
- Gather information required to apply for the bond
There is some information that you need to know when you are applying for a surety bond. Necessary details include:
- Business name
- Address
- License number (if you are renewing your bond)
- Ownership information
- Choose the third party for your bond (Surety)
Choosing your surety means that you are choosing to work with people who are competitively pricing for you, so you have to choose wisely and look further into your options, to make sure that you are working with people who you can trust and can work with.
- Purchase and receive your bond
There are some surety bond insurances that have an online platform that you could purchase from, it depends on the surety bond program you choose.
- File your surety bond with the obligee
Check with your obligee that is requiring you to get a bond to determine whether or not they require a raised or digital seal. Sign your bond as the principal and submit it to them. After doing this, you are all done!
There are a lot of people who are unsure on whether or not they should apply for a surety bond and feel intimidated by the whole process if it. You should not be so wary or anxious because despite all the various regulations, the general process of obtaining a surety bond is fairly consistent and with the right people beside you, the whole process would fly by in a breeze.
