When it comes to getting a surety bond, one of the most important questions you may have revolves around surety bond cost. Not only do you need to consider the amount of the bond, but you must also factor in fees, also known as surety bond premiums.
Let’s take a look at some factors that go into calculating the cost of a surety bond. We will then provide tips on how to get the best surety bond rates. So whether you are just starting out or are renewing an existing bond, keep reading for helpful information on what goes into determining surety bond cost.
What is a Surety Bond?
A surety bond in its most basic form is an agreement between three parties;
The principal who is bound by the contract (known as the party that has to deliver on a contractual obligation);
The obligee, or the party to the contract that has exposure to the principal’s ability to perform (or the party that is being protected from a loss);
And the surety company, also known as the bond company that backs up the performance of the principal and makes the obligee whole if the principal fails to perform.
Why do you need a surety bond?
There are many reasons as to why an individual or business owner might need a surety bond, but most commonly they are required as a contract requirement for bidding on public projects, for licensing, or for reducing a company’s risk when hiring a service provider to perform a job.
How much does it cost?
Many factors play into bond cost for the various types of surety bonds available, including total bond amount or bond coverage, financial history, financial strength and the applicant’s credit score. Also, surety bond costs vary from state to state, but on average they fall within the $100 -$2000 range for commercial bonds, particularly license and permit bonds. Construction bonds, such as performance bonds or bid bonds, are project-specific therefore range and the surety bond cost will be based on the nature of the contract, industry standards, total bond amount, and type of work involved.
Poor business credit history or a low personal credit score can affect surety bond rate. The surety bond cost may be higher, if you have bad credit. Generally speaking, surety bond costs are a small percentage of the bond amount, typically between 1-5% depending on the type of work that needs to be done or obligations required to be met. Generally, higher risk bonds and applicants carry higher premiums.
What factors determine cost of a surety bond?
1. The amount of the bond
The more money or coverage requested will affect how much surety bonds cost. You may require $50,000 worth of protection but only end up needing $25,000 worth meaning that you will be charged for the full $50,000 bond amount.
2. Industry standards
Surety companies that you are working with may have their own set of industry standards that they follow, such as rate filings. It will base its rates around these standards so being familiar with them can help you determine what kind of surety bond cost to expect.
3. Type of work involved
The riskier the contract or work, the higher your total bond premium will be. The more dangerous or riskier the type of work will result in the bond cost being generally higher.
4. The surety bond company
Just as with any business, some companies have higher bond rates than others so shopping around can help to save you money in the long run. At Simpli Surety, our relationships with top-tier carriers allow us competitive rates and savings passed down to you.
5. Term of the bond
This can be anywhere from one year to five years and will affect the surety bond cost as well as whether or not it is a flat rate or a percentage. If you choose a term that is less than a year, expect to pay a full year’s surety bond premium.
Tip to reduce surety bond costs
Getting the best rates for your surety bond is easier than you might think and by following a few simple steps you can lower your surety bond cost significantly. Simpli Surety has done all the hard work for you, bringing you the best market at the best price for your bond.
Shop around
This will help ensure that you get the lowest rate possible and also helps keep business in the area which will ultimately prove beneficial to all. At Simpli Surety, we may not be the cheapest but we are competitive and offer some of the lowest rates in the industry. Don’t forget, you get what you pay for.
Compare what is included to what you need
It’s not primarily about the surety bond rate. Make sure you are comparing like services and make sure that the coverage meets your needs.
Talk to the experts
Look for advice from industry professionals, surety bond specialists or your peers who have obtained bonds before. Don’t go with someone just because they offer you a better deal, as rates typically range, but instead do your research and look for the best fit.
Don’t pay until approved
Some companies will want you to pay a deposit before they can start your application process which is something that you should avoid. Instead, wait until all paperwork has been submitted and the bond has been approved awaiting your final signature. Then make your final payment. At Simpli Surety, you don’t pay until approved and bonds are ready to be sent to your inbox.
How to get a surety bond?
Getting a surety bond with Simpli Surety is easy. Our surety bond catalog has thousands of instantly available bonds and we’re adding new bonds weekly. Simply find your bond using the online bond search tool and click Instant Buy button next to your bond.
There you’ll find our online surety bond application where you’ll submit typical information such as contact information, company name, address, business financial statements, etc. For construction bonds also know as contract bonds, the nature of the project will be required and as contractual obligations can be more complex in the construction industry. Construction bonds cost typically range as a percentage of the total project cost.
Once sent, this will flow through our automated underwriting process taking into account things such as surety bond amount, credit score via a credit check, credit history, bond type, tax returns and other factors. If approved, the surety bond will be issued instantly and sent to your inbox along with an indemnity agreement for signature and payment. Once executed, you’ll receive a final copy as will the Obligee. That’s it, you’re back in business!
How to renew a surety bond?
As a Simpli Surety client, we will remind you when your surety bond renewal date approaches so you can renew your bond without difficulty. This is common for license and permit bonds which often have annual renewals or every 2-3 years. If you are coming from another surety company, we suggest renewing prior to your renewal anniversary with them as not to incur unnecessary fees by getting double bonded. This will allow you to switch companies whenever you need to and avoid paying any additional costs for your bond.
Will the surety bond cost change at renewal?
Depending on the type of surety bond, your renewal surety bond cost can go up or down. The riskier you are the higher the bond premium and the surety company will want to know if anything has changed with your business or financial situation. If there are no claims for a period of time then yes, or your business is sound, it is likely that your rate will go down.
How to keep surety bond costs low?
The best way to keep your bond rates low on your surety bond is to apply only with companies that have a good reputation and offer you a competitive quote. Avoid business with surety companies that do not work with well-known surety bond carriers, also be wary of companies who push for you to use their services before they have even submitted any type of quote. And be sure to use a licensed surety agency or a surety bond specialist when getting your bond!
What are the benefits of having a surety bond?
Having a surety bond has many benefits for both you and your company. The primary benefit though is that it makes you more attractive to potential clients and partners than if you did not have one, because it protects those you’re doing business with. This can result in more projects, larger contracts, and higher revenue for your company.
