Basic steps to getting a surety bond
1. Determine the bond type and amount
2. Find a reputable surety broker to shop around for you
3. Gather the necessary information and get a quote from the broker
When it comes to starting a new business, getting a license or permit, or working on a construction project, one of the tasks you may encounter is obtaining a surety bond. This article covers the surety bond types, the surety bond application procedure, and the surety bond process.
First, what is a surety bond? A surety bond is a three-party agreement between the principal (business owners, small businesses, or contractor), the obligee (project owner, small business administration, or the government), and the surety (surety bond companies). The purpose of the bond is ensure that the principal fulfills their contractual obligation to the obligee.
Surety bond types are contract surety bonds, commercial surety bonds, and court surety bonds. Contract surety bonds include construction bonds such as performance bonds, payment bonds, and bid bonds. They ensure completion of contractual obligations. Commercial surety bonds include permit and license bonds, motor vehicle dealer license bond, contractor license bond. They ensure compliance with laws. Court bonds include appeal bonds or bail bonds. The surety bond requirements for court bond is more specific.
Surety bond cost can vary widely across different surety companies. This is because each surety company has specialized categories of bonds that they do well in, each with different specialities by bond type, location and credit score. For example, one company may have the best prices for California contractor bonds while another specializes in Florida auto dealers bonds. To ensure that you get the best prices for your bond, we recommend that you purchase bonds through surety bond companies (such as SuretyNow). This is because brokers shop around on behalf of customers to get them the best quotes.
There are many different types of businesses and industries that require a surety bond. Some of the most common industries that require surety bonds include construction, transportation, finance, and healthcare industries. Government agencies also often require surety bonds for various purposes, such as licensing, permits, and bidding on contracts. Here is a list of common professions that require a surety bond:
One thing to note is that getting a surety bond may be difficult for certain individuals. If you have a history of claims made against any previous bonds, or if you have a low credit score, it may be more difficult to get a surety bond since surety companies see this as a signal of increased risk. However, this doesn’t mean bonding is impossible. We work with insurance carriers that specialize in providing bonds to individuals with low credit scores or previous claims. Fill out our forms to get a quote and we’ll do our best to get you bonded.
If you’re worried about getting a bond with a low credit score, do not fret! Here are some quick ways to improve your credit score in preparation to seek a surety bond:
Now that you know what a surety bond is and who needs them, it is time to discuss the basic steps of getting a bond. Here are the general steps, we will go into more detail into each of these steps below.
The first step in obtaining a surety bond is to determine what type of bond you need and the amount required. There are many different types of surety bonds, each with its own requirements and specifications. The most common Surety bond types include:
There are many more surety bond types, but these are the most common. For most bonds, the primary reason to get them is to get licensed with the state. Usually, the state licensing instructions will tell you the type of bond you need. You should look at your specific situation and needs of your business to evaluate the type of bond suited to your needs. If you are unsure about if a bond is needed or what type of bond you need, give us a call or email and we’ll help you figure it out.
For many kinds of surety bonds, such as an auto dealer bond, the state you are from will pre-determine the bond amount you need. The bond amount is the maximum payout on any claim filed on the bond. However, this depends on the bond type and state.
Once you know what type of bond you need and the amount required, you'll need to find a surety bond producer to help get you the best quotes. It's important to choose a reputable company with a track record of providing quality service and support.
Check that the broker is registered: Firstly, make sure the surety broker is licensed and registered with your state. You can verify individual license status for insurance brokers using Sircon and NIPR.This ensures that they are legally authorized to provide surety bonds.
Check for the broker’s reputation: Additionally, check the company's reputation within the industry by making sure they have real customer reviews online, either on Google or a trusted review site such as TrustPilot. Recent reviews are a good indicator that the broker is still operating effectively.
Ensure the broker is experienced in the bond you need: Furthermore, it is also important to make sure that the broker provides the specific type of bond you need and has experience in your industry. This is important because there are 1000s of bonds across the US and the broker may not be familiar with all of them. You can evaluate the broker’s expertise by looking at the quality of blog posts that the broker produces for the bond you need or how knowledgeable they seem over communication.
Get a broker with good service: Finally, consider the level of customer service and support offered by the broker - a reliable and responsive surety bond company will be an important partner in growing your business. What are their hours like? And how quickly they respond to your initial queries are important criteria to consider. The last thing you want when your bond is being denied by the state is a broker that is slow to respond to your questions.
In summary, the most important considerations when it comes to seeking surety bond companies are:
The next step is to gather your personal information for an online application and submit it to a broker to get a quote. The specific information varies bond to bond, but generally you will need:
Here at SuretyNow, we are an online surety producer, so you can submit your information using our online application forms. We deal with two kinds of surety bonds: bonds that are instantly purchasable and bonds that require underwriting review.
For instantly purchasable bonds, you can simply fill out our online application and immediately receive a quote. Some common instant bonds include the ERISA bond California tax preparer bond.
For bonds that require underwriting review, you’ll still have to fill out our online form, but we won’t be able to provide you with an instant quote. We’ll take the information you’ve provided and shop it around with our insurance partners to gather quotes. Once we find a quote that we like, we will send it to you over email for you to review. You could then choose whether to proceed.
The quote you receive is based on a percentage of the bond amount, known as rate. The bond amount and rate go together to determine how much your bond will cost. For example, if your bond amount is $50,000 and you obtain a rate of 5%, then the surety bond cost is $2500. If your rate is 1%, you will pay $500 for your bond.
Here is a brief chart of your hypothetical bond cost assuming your bond amount is $50,000, with different rates.
Bond amount: $50,000 | |
Rate | Bond cost/Premium |
1% (Best credit score) | $500 |
2% | $1,000 |
3% | $1,500 |
4% | $2,000 |
5% | $2,500 |
10% (Low credit score) | $5,000 |
Once you’ve confirmed that the rate provided suits your situation, you can now follow the instructions provided by the broker to obtain your bond.
After you have received a quote and decided to move forward with purchasing a surety bond, the next step is to complete the purchase process. For SuretyNow, if the bond is instantly purchasable, then you will be able to checkout on our site using our secure checkout. If the bond requires manual underwriting review, we will send you a secure payment link for payment upon underwriting approval. Once your payment has been received, the surety bond will be issued
Purchasing a surety bond can be a complicated process, but by following these steps, you can ensure that you obtain the bond you need that fits your situation. Remember to do your research, obtain the best quote, and choose a broker that meets your needs and budget. By working with a reputable surety bond broker, you can ensure that you are getting the right bond at the best price. Now that you are more familiar with the general framework of the journey to seeking a surety bond, it is time to begin the first steps; feel free to refer to our experts if any questions arise. Good luck!