Instant Customs Bonds
for Importers
Simpli Surety provides customs bonds instantly with a credit check for shipments of all values. Get your executed bond emailed to you within minutes if you qualify. It’s that simple!
GET YOUR BOND
What Is A Customs Bond?
Customs bonds function as a type of financial guarantee for the government. When importing goods into the United States, certain laws and regulations must be followed and taxes, duties, and fees must be paid to the government.
A customs bond serves as a promise that these obligations will be met by the importer. The bond is a guarantee that the importer agrees to comply with all applicable laws and regulations and that any duties, taxes, and fees owed to the government will be paid.
Customs Bond Basics
- Required for importing into the United States
- Costs a percentage of goods to be imported
- Ensures taxes and regulations will be met by the importer
How Do Customs Bonds Work?
Customs bonds act as guarantees that any importer complies with all import regulations, pay all taxes and duties, and adhere to any other applicable laws.
The bond is underwritten by a surety company, which is a third party that guarantees the government that the importer will meet their obligations. If the importer fails to do so, the surety company will step in and pay any owed taxes or penalties on behalf of the importer. The importer will then have to reimburse the surety company for these payments.
There are two main types of customs bonds: single-entry bonds and continuous customs bonds (or annual bonds). A single entry bond is required for each shipment, while a continuous bond covers an importer for multiple shipments over one year. Customs bonds are typically obtained through a customs broker or freight forwarder.
Also known as a non-tariff compliance bond, the bond can also be issued by an insurance carrier that guarantees compliance with all federal laws and regulations regarding the importation of merchandise.
Who Needs a Customs Bond?
Every importer of merchandise into the United States of America needs a custom bond with a value of at least $50,000 to cover the value of the merchandise being imported.
For larger importers, higher amounts may be required. Custom bonds are also required for international freight forwarders, brokers, warehousemen, consolidators, cargo agents, and others involved in the import process.
Three Parties to a Customs Bond
There are three parties involved in a customs bond, the principal, the obligee and the surety.
1. The Principal
This is the importer or the entity that needs to be bonded. The principal is the one who is liable for the compliance with the laws and regulations, and for the payment of duties, taxes, and fees.
2. The Obligee
This is the government agency that requires the bond, in this case, the United States Customs and Border Protection (CBP).
3. The Surety
The surety is the company that issues the bond, guaranteeing the government that the principal will meet their obligations. Sureties are typically insurance companies or other financial institutions that are authorized by the government to issue bonds.
Together, these three parties create a legally binding agreement.
The surety guarantees the government that the principal will comply with all laws and regulations and pay any taxes and duties owed, the principal takes on the responsibility to comply with the laws and regulations and pays any taxes and duties owed, and the government (obligee) holds the right to claim payment from the surety if the principal fails to meet their obligations.
Customs Bond Benefits
There are numerous benefits for both the importer and the government agency in using customs bonds:
- Compliance: Customs bonds provide assurance to the government that the importer will comply with all applicable laws and regulations related to importing goods into the United States.
- Financial Protection: Customs bonds provide financial protection to the importer by guaranteeing payment of any duties, taxes, and fees owed to the government.
- Simplified Customs Process: Having a customs bond can streamline the import process and help to ensure that goods are cleared through customs quickly and efficiently.
- Improved Creditworthiness: Obtaining a customs bond can improve an importer’s creditworthiness and make it easier to obtain financing for future imports.
- Reduced Risk: Customs bonds can help to reduce the risk of financial loss for importers by transferring the risk of non-compliance to the surety company.
- Flexibility: Customs bonds can be obtained for a single shipment or for multiple shipments over a one-year period, providing flexibility to importers.
- Peace of mind: Customs bonds provide peace of mind to importers, knowing that they have a guarantee that they will comply with laws and regulations and that any taxes and duties will be paid.
It is possible for a Surety Bond Company to “cap” a bid bond. This means they will have a maximum bid amount on the bid bond and therefore a maximum bond penalty.
Cost
Cost of bid bonds depends on the surety bond company and broker. MG Surety Bonds does not charge for bid bonds. We want to build a long-term relationship with our clients and issue bid bonds as part of that service.
How to Get a Bid Bond
In most cases, companies with good credit can get bid bonds up to $500,000 freely with a simple application. Larger bid bonds may require additional information and our staff are happy to help you through the process. You can see the process for obtaining a bid bond in the chart below:
Contractors can also learn more about construction bond underwriting and what it takes to get bid bonds here. As contractors grow, they may need more surety bond capacity to take on additional work and to obtain more bid bonds. You can read more about increasing your surety bond capacity here.
What Happens to the Bond After the Bid?
Should you be the successful bidder, the Obligee will likely require you to enter into a contract. At that point, they may ask you to provide Performance Bonds and Payment Bonds.
Should your bid be unsuccessful, the bid bond will simply expire, and you can shred it and move on to the next job. There is no need to have the bid bond returned.
When Would Someone Make a Claim on a Bid Bond?
Bid bond claims are rare. Normally they occur in one of two circumstances:
• When the Contractor (Principal) decides not to enter into the contract for that price
• When the Bond Company (Surety) decides that they will not support performance and payment bonds for the project.
Both circumstances typically happen when a contractor makes a large mistake. The Obligee could then make a claim on the bid bond. An example is below:
Contractor 1 bids a project with a 5% bid bond. The bid is turned in at $700,000. Contractor 2 is the second lowest bidder at $1,000,000. After reviewing their bid, Contractor 1 realizes they made a mistake and left something out. Contractor 1 tells the Obligee that they will not be entering into the contract. The Obligee can then make a claim on the bid bond for $35,000 ($700,000 x 5%) to compensate them for having to rebid the project or go to the next bidder.
Suppose in the example above that Contractor 1 still wants the project at $700,000 and would like to go ahead. Their surety bond company may decide not to support the project. The Contractor must either find another surety bond company who will support the project or the Obligee can make a bid bond claim. You can read all about bid bond claims here.
Defenses to Bid Bond Claims
A valid defense to a bid bond claim is clerical error or error in transposing the numbers. For example, let’s say a material supplier gave you a bid for $50,000 but in your rush to get your bid together, you wrote it down as $5,000. This could be a valid defense to a bid bond claim.
Best practice is to go the Obligee as soon as you know there is a mistake. Regardless or whether there is a valid bid bond claim or not, most good owners and contractors do not want to start a project with someone who is upside down on the project. They may decided that it is best to move on to the next bidder.
Indemnity
Bid bonds are written on The Principle of Indemnity. That means that if a valid claim does happen, and the surety bond company pay a claim, they will seek reimbursement from the contractor any other indemnitors. The terms are normally spelled out in the General Indemnity Agreement which a contractor will be required to sign with the surety bond company before receiving any bid bonds.
Electronic Bid Bonds
Many Obligees have moved to electronic bidding. This is especially true for Department of Transportation projects. The underwriting for obtaining these electronic bid bonds are still the same. Once the bid bond is approved by the surety bond company, the electronic bond is approved in the bidding system.
What to Look for in a Bid Bond Company
The bid documents will outline the requirements for the surety bond company writing your bid bond. Many will require that your surety bond company be rated “A-“ or better by the rating agency A.M. Best. Contractors should be very suspicious about using a bond with a lesser rating. Most contracts will also require your surety bond company to be listed on the U.S. Department of Treasury’s Circular 570 which you can check here. This is sometimes shorted as a “T-Listing”.
Different Types of Customs Bond
There are three main types of customs bonds: single entry bonds, continuous bonds, and deferred payment bonds.
Single Entry Bond
A single entry bond is used for a one-time import shipment and is valid for one year from the date of issuance. This type of bond is typically used by infrequent importers or those importing small quantities of goods.
Continuous Bond
A continuous bond is valid for one year from the date of issuance, but can be renewed annually. This type of bond is typically used by frequent importers or those importing large quantities of goods.
Deferred Payment Bond
A deferred payment bond is used when an importer is unable to pay the full amount of duties and taxes owed at the time of importation. This type of bond allows the importer to pay the duties and taxes over time.
It is possible for a Surety Bond Company to “cap” a bid bond. This means they will have a maximum bid amount on the bid bond and therefore a maximum bond penalty.
Cost
Cost of bid bonds depends on the surety bond company and broker. MG Surety Bonds does not charge for bid bonds. We want to build a long-term relationship with our clients and issue bid bonds as part of that service.
How to Get a Bid Bond
In most cases, companies with good credit can get bid bonds up to $500,000 freely with a simple application. Larger bid bonds may require additional information and our staff are happy to help you through the process. You can see the process for obtaining a bid bond in the chart below:
Contractors can also learn more about construction bond underwriting and what it takes to get bid bonds here. As contractors grow, they may need more surety bond capacity to take on additional work and to obtain more bid bonds. You can read more about increasing your surety bond capacity here.
What Happens to the Bond After the Bid?
Should you be the successful bidder, the Obligee will likely require you to enter into a contract. At that point, they may ask you to provide Performance Bonds and Payment Bonds.
Should your bid be unsuccessful, the bid bond will simply expire, and you can shred it and move on to the next job. There is no need to have the bid bond returned.
When Would Someone Make a Claim on a Bid Bond?
Bid bond claims are rare. Normally they occur in one of two circumstances:
• When the Contractor (Principal) decides not to enter into the contract for that price
• When the Bond Company (Surety) decides that they will not support performance and payment bonds for the project.
Both circumstances typically happen when a contractor makes a large mistake. The Obligee could then make a claim on the bid bond. An example is below:
Contractor 1 bids a project with a 5% bid bond. The bid is turned in at $700,000. Contractor 2 is the second lowest bidder at $1,000,000. After reviewing their bid, Contractor 1 realizes they made a mistake and left something out. Contractor 1 tells the Obligee that they will not be entering into the contract. The Obligee can then make a claim on the bid bond for $35,000 ($700,000 x 5%) to compensate them for having to rebid the project or go to the next bidder.
Suppose in the example above that Contractor 1 still wants the project at $700,000 and would like to go ahead. Their surety bond company may decide not to support the project. The Contractor must either find another surety bond company who will support the project or the Obligee can make a bid bond claim. You can read all about bid bond claims here.
Defenses to Bid Bond Claims
A valid defense to a bid bond claim is clerical error or error in transposing the numbers. For example, let’s say a material supplier gave you a bid for $50,000 but in your rush to get your bid together, you wrote it down as $5,000. This could be a valid defense to a bid bond claim.
Best practice is to go the Obligee as soon as you know there is a mistake. Regardless or whether there is a valid bid bond claim or not, most good owners and contractors do not want to start a project with someone who is upside down on the project. They may decided that it is best to move on to the next bidder.
Indemnity
Bid bonds are written on The Principle of Indemnity. That means that if a valid claim does happen, and the surety bond company pay a claim, they will seek reimbursement from the contractor any other indemnitors. The terms are normally spelled out in the General Indemnity Agreement which a contractor will be required to sign with the surety bond company before receiving any bid bonds.
Electronic Bid Bonds
Many Obligees have moved to electronic bidding. This is especially true for Department of Transportation projects. The underwriting for obtaining these electronic bid bonds are still the same. Once the bid bond is approved by the surety bond company, the electronic bond is approved in the bidding system.
What to Look for in a Bid Bond Company
The bid documents will outline the requirements for the surety bond company writing your bid bond. Many will require that your surety bond company be rated “A-“ or better by the rating agency A.M. Best. Contractors should be very suspicious about using a bond with a lesser rating. Most contracts will also require your surety bond company to be listed on the U.S. Department of Treasury’s Circular 570 which you can check here. This is sometimes shorted as a “T-Listing”.
How to Get a Customs Bond
To obtain a customs bond, you will need to work with a surety company. Surety companies are typically insurance companies that specialize in issuing customs bonds.
You can find a surety company by searching online, or by asking other importers for recommendations. Once you have selected a surety company, you will need to provide them with information about your business and your import activities. This may include financial statements, business licenses, and other relevant documents.
The surety company will use this information to determine the amount of bond coverage that you need and the premium that you will need to pay for the bond. Once the bond is issued, you will need to provide a copy of the bond to U.S. Customs and Border Protection (CBP) as a guarantee that you will pay any duties, taxes, and fees owed on your imported goods.
Simpli Surety is the fastest way to get your customs bond. Simply fill out our online form, and providing you qualify, we’ll send you your bond immediately.
Customs Bonds FAQs
When is a customs bond required?
If the total value of your shipment is more than $2,500 or if your shipment contains alcoholic beverages or a hazardous material, you are required to have a US Customs Bond in place before you clear the goods through customs and deliver the products to your customers.
What happens if I don’t get a customs bond?
If your goods are not cleared through customs because of the lack of a US Custom Bond in place at the time of clearance, your goods may be seized by U.S. Customs and Border Protection, and you will be subjected to fines and penalties.
Where can I buy a customs bond?
If you are required to have a customs bond with a value of at least $50,000 for your importation transaction, you can find the bond you are looking for online. For smaller transactions that do not require a bond for value in excess of $2,500 you can usually purchase these at your local bank or credit union.
A foreign-trade zone is an area where certain operations are permitted to take place outside of the normal customs laws. Certain goods are allowed to be imported into the United States without being subject to duty or taxes if certain conditions have been met.
A drawback is a type of tax adjustment available to U.S. importers who claim a refund on bonded entries of foreign merchandise not entered for consumption in the United States. What are the responsibilities of the keeper of a bonded warehouse?
How long does it take to obtain a bond for customs?
Two to five days
U.S. Customs and Border Protection (CBP) advises importers looking for a customs bond that they can get one from a surety that is authorised by the U.S. Department of the Treasury. In typically, obtaining a bond takes 2 to 5 days. A licenced customs broker can work on your behalf to secure a customs bond.
What is covered by a customs bond?
A customs bond is a written agreement between an importer or shipper (the principal), a surety firm, and CBP that ensures the importer will adhere to customs laws and will pay CBP for any necessary import duties, taxes, fines, and penalties.
Simpli Surety Bonds is the fastest and easiest way to secure your customs bond. With our comprehensive online bond catalogue, simply fill out our online form and get bonded immediately.
