A legal contract surety bond is a three party contractual agreement where the surety guarantees the oblige (the project owner) that the principal (the contractor) is capable of carrying out the contract in accordance with the contract documents.
People may find it difficult to qualify for the surety bond they require. Sometimes people have been bonded for years however, they are struggling to qualify for a bond renewal. What people don’t realize is that there are reasons they may not be qualified for a bond, which might not even be their fault.
One reason might be new bonding requirements developed by various government authorities. A previous financial downturn can greatly tighten the qualification standards. It is unfortunate that this challenge cannot be avoided. Nevertheless, you can still improve the likelihood that you will be able to be eligible for the bond you need.
If you have a low credit rating or a score that has dropped since you purchased your original surety bond, you may not be able to qualify for renewal or initial grant. Increasing your credit score with a few points can give you an additional push towards authorization. Another problem that may obstruct your approval is a loss of business property. For instance, if your cash deposits have decreased since you bought your original bond, you may not be approved. Lastly, previous bond claims against you as a surety bondholder might also keep you from getting a bond. Fortunately, there are some steps you can take to achieve qualification.
Prequalification Process for Surety Bonds
Every surety company has its own underwriting standards and requirements; however, there are shared fundamentals familiar to the underwriting of many surety organizations. Before a surety under-writes a bond, the contractor typically goes through a cautious, rigorous, and thorough process, often known as prequalification.
The prequalification procedure takes time as the company collects information, answers questions the surety underwriter might have, and supports in verifying information. The surety has to be completely satisfied that a contractor can meet up with current and future financial obligations, has a great reputation, has experience meeting the demands of the projects to be undertaken , and has ( or can easily obtain ) the equipment essential to carry out the work. The surety also looks for contractors who run a well-managed, profitable business, keep promises, deal fairly, and carry out duties in a timely manner.
Seven Reasons Why You Don’t Qualify for Surety Bonds
- Good reference and reputation
- The ability to meet current and future obligations
- Experience matching the contract requirements
- The necessary equipment to do the work or the ability to obtain it
- The financial strength to support the desired work program
- An excellent credit history
- An established bank relationship and line of credit.
How to Secure a Surety Bond for Your Next Job
Professionals and customers alike usually have a small knowledge about how to secure a surety bond. Even people who are required by law to buy surety bonds could get lost in the confusing process. Though the surety bond market is an important part of the insurance business, little information is offered to advise individuals on how to secure a surety bond.
1. Determine how much time you will have to get the surety bond.
Most of the time applicants wait until 1 week before their bond is due to apply for a surety bond. Even though surety bond providers have the capital to issue many bonds in just one business day, this would not be assumed to be normal protocol. Applicants need to comprehend that when surety providers issue bonds, they are doing lawfully binding contracts that offer security through a financial guarantee.
While underwriting high risk or even intricate bonds, surety providers will require more time to evaluate an applicant’s qualifications. This indicates that applicants have to give surety providers sufficient time to do their job to the best of their ability. This includes allowing time for physical delivery, as surety providers are going to charge extra fees to ship surety bonds express or overnight.
2. Collect information that can affect your bond application.
Before you decide to secure a surety bond, always make sure that all useful personal information and company details are easily accessible. When considering you or your company as a great customer, surety providers will usually request for:
- The exact business name as it appears on the business license
- The exact penal sum ( the bond amount )
- Social security numbers of all owners
- Home addresses of all owners
- All relevant personal and business financial records
Surety providers would also inquire about your credit rating, since it’s one of the greatest factors that might affect your surety bond cost. Your surety provider will look it up later on during this process, but having a ballpark estimate early on permits the surety to give you an accurate cost estimate.
Find the Best Rate for Your Surety Bonds
Those trying to secure a surety bond have two primary providers from which they can buy their bonds. Insurance providers generally issued surety bonds given that they had the financial capacity to provide large economic guarantees. In the past decade, lots of specialized surety companies have come together to provide more comprehensive bonding services to principals who need to apply for a surety bond.
Finding a surety bond provider that will provide you a competitive rate is much easier than ever, since most of today’s surety bond providers have solid online presences. You can apply for surety bonds online and get a company selling price quote back in as little as one day. Just be sure you have the essential information at your disposal, as you will get a more genuine price if you can offer the surety provider with specific information in your initial request.