How surety bond premiums work

Published by admin | Filed under Bonds

Surety bonds are a crucial part of any contractor business.  The majority of consumers today recognizes the importance of hiring a licensed and bonded contractor and realizes that the bond provides them a measure of protection in case of contract default or breech.  Having a surety bond in place for your business can often mean the difference between getting that contract and watching another company win it.
A surety bond is essentially a guarantee to your customer that the work you were hired for will be performed and finished as specified in the contract.  If you don’t perform, the bond company steps in and will either pay your customer damages or, in some cases, take over the work and/or amend the contract to ensure that the job is finished to the consumer’s satisfaction. 
For those with good to average credit, surety bonds are generally issued by insurance companies.   Contractors with poor credit will probably need to secure their bond from a bond company who specializes in bad credit bonds.  The company’s primary objective is to identify the contractors who have resources, skill and persistence to complete the project they begin, so the majority of the process of getting a surety bond is focused on providing the company information about the contractor’s business and experience.  Understandably, the primary concern for most contractors is to obtain their bonds for as inexpensively as possible, and the cost of the premium is what most are focused on when involved in the approval process for a surety bond. 
In general, the premium that you’ll pay on a surety bond is based on a percentage of the total penal sum of the bond.  Contractors with average credit will generally pay a premium of around one to five percent of the penal sum.  Larger, more financially secure contractors will usually pay a premium on the lower end of this scale.  Contractors with poor credit might pay as much as twenty percent and will most likely have to go through a bonding company rather than an insurance company to receive their surety bonds.
The percentage rate of this premium generally varies from company to company, which is why it’s so critical to shop around when you’re looking for a company to issue your surety bond.  Just like a credit card, mortgage, or other loan, you want to be sure that you’re getting the best possible rate.  For more information on surety bonds and the specifics of premiums, rates, and qualifications, please see http://www.sio.org