Commercial Surety Bonds
On Point.
Commercial Surety Bonds are bonds purchased for your enterprise to satisfy government and/or institutional requirements to protect against risk. These bonds guarantee that a business or individual will comply with all required legal obligations.
Commercial Surety Bonds
The Blindspot
Bond ability is a hallmark of security when it comes to engaging in large scale projects. If you don’t understand the requirements of Commercial Bonds, their costs, or the factors impacting their purchase, you may miss out on valuable projects, or incur unexpected costs.
What are Surety Bonds?
A surety bond protects your client against losses, up to the limit of the bond, that result from your failure to perform an obligation or undertaking. They are like a short-term insurance related specifically to the undertaking between you and your client.
You may be required to purchase bonds for your enterprise to satisfy government body, institutional, or federal/provincial court requirements to protect your business against financial risk. Commercial bonds are (typically) a part of your company’s licensing or requirements’ process. They also provide protection for the consumer against misrepresentation, fraud, and offer compensation for monetary loss.
Surety bonds will involve three parties. Those include the Surety, the Obligee, and the Principal. The Principal is the individual or party whose obligation is guaranteed, the Surety is the party that assumes the obligation if the principal is unable, and the Obligee is the party or individual to which the bond is payable in the event of a default.
Surety bonds can exist in numerous forms, but the two most common are contract and commercial.
Contract Surety VS Commercial Surety
Note that, at least in Canada, surety bonds of all forms may only be issued by bodies who are licensed to do so. This can be federally or via provincial insurance regulatory bodies. Applicants for surety bond licensing may find that the requirements are challenging and necessitate the ability to demonstrate the capability to meet claims’ obligations and financial solvency.
How Are Commercial Surety Bonds Priced?
Commercial surety bonds are commonly priced between as high as 3% to as low as 0.5% of the original bond obligation. However, finding the exact price for a surety bond – commercial or otherwise – is a difficult process, and it depends on a lot of different factors. Say you were pricing a $100,000 commercial surety bond. Factors that will come into play will be your company’s existing finances, average revenue, risk factor, geographical location, your history, and even credit. A decent credit may reward you with a payment of around 0.5% to around 2% of the total bond amount. This means your annual payments may range between $500 to $2,000. The worse your credit, the higher you may be paying. In order to minimize your costs, you may wish to keep your credit in better condition and avoid claims as much as possible.
Other Factor’s Impacting your Surety Bond Costs:
While credit and claims’ history are the most important factors impacting your costs, other factors may have some effect on your surety bond costs, including:
- Financial statements
- Past experience in the industry
- Liquid assets
- Location
- The surety bond agency
Excalibur Insurance can help get you in contact with a surety company near you that is suited to the needs of your enterprise and circumstances so you can get the best price. Get started with Excalibur today.
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