Surety bonds are the most commonly used three-party bond guarantee in North America.
These guarantees include a principal, who requires the bond, an obligee which is who the bond is to be paid to if the principal defaults or fails to meet contractual obligations, and the surety company, which is who distributes the bond.
This is a method of safeguarding contractual agreements and ensuring that the principal will carry out, following his contract, the obligations requested. Assuming the principal does default and refuses to maintain contractual obligation, then the bond will be issued to the obligee who can prevent further losses and recuperate any loss of earnings.
This page will explain how you can make your business more credible with the help of a surety bond, and how you can go about taking one out.
Which Businesses are Eligible for Surety Bonds?
Establishing whether or not you are eligible for a surety bond can be difficult. If you have struggled in the past to find a guide that tells you how then you can find more info here, and hopefully understand the process a little clearer. Surety bonds are primarily issued in the construction industry, and if you are a large construction company or an independent tradesperson, you may be eligible.
Surety bonds are issued on construction jobs to ensure that the work requested by the obligee is completed to his or her specifications. You can check your eligibility by contacting a surety provider. There are some instances when companies not involved in construction can make use of a surety bond, but this is not often, as there are many other solutions available to businesses other than surety bonds.
Is Your Business Eligible for a Surety Bond?
Providing you meet the initial criteria; you will then also need to establish that you have good credit and a history of good conduct. A surety company will want to see your company’s financial record and will want to see that you have the money and equipment necessary to fulfil the obligations requested. If you find yourself unable to take out a surety bond, then you may have to go to a bank and get a more traditional loan or bond. Surety bonds are quite difficult to get if you have a bad credit history, which is why it is important to look after your credit, as being unable to get a surety bond can on occasion mean losing a high-paying contract.
What Are the Benefits of a Surety Bond?
A surety bond provides many benefits, one of the main beings that you do not need to provide anything in the way of security and will have your assets and money untouched. It also provides you with the comforting knowledge that should any contractual disagreements arise, that you will be duly compensated providing you are not the catalyst for the disagreement. If the obligee refuses to pay you for no good reason, then the bond can ensure you do not lose earnings. Surety bonds last for the entire duration of your contract to keep everybody safe and will usually continue for at least a year after the end of the contract. This yearlong period is known as a maintenance period and ensures that if the obligee has any problems with your work following the completion of the job, that they can be compensated.
How Can a Surety Bond Make My Business More Credible?
By accepting surety bonds during the initial construction bidding process, it gives the obligation the knowledge that you are a professional and forthcoming tradesperson and have no intention of swindling him or leaving the job unfinished. Tradespeople who do not accept surety bonds are not to be trusted, as a surety bond will never come into use providing the job is carried out to the specifications requested by the obligee. By openly declaring that you have no problem with a surety bond, your business becomes ten times more credible, and you are much more likely to find work than companies who refuse surety bonds.
Who Provides Surety Bonds?
Surety bonds are most often provided by big insurance lenders. You will have to undergo extensive checks by these companies to ensure you can be trusted. Shop comparatively when you are trying to find a surety bond provider, as some can charge extortionate interest. Look for around 1%. Insurance providers are many, so you should have no issue finding one who can offer you the best package suited to you.
Now you know a few ways that a surety bond can boost your business’s credibility. Rather than dealing in unsecured business, suggest a surety bond to every employer you come across so that you can ensure everybody leaves with a smile on their face, and ensure that everybody is paid properly.