What is the process to obtain a bond?

What is the process to obtain a bond?

To start the process you need to apply then be given your premium cost and an agreement between you and the bonding company.  The bond is then issued 1-2 business days from receipt of payment and the agreement (original agreement is often required).

How do surety bonds work?

The principal (you) pays a percentage of the bond amount called a bond premium.  In return, the surety extends “surety credit” to make the required guarantee (the bond).  A claim can arise when the principal does not abide by the terms of the bond. In the event of a claim, the surety will investigate to ensure it is valid.  If the claim is valid, the surety will look to the principal for payment of the claim and any associated legal fees.

What good is a bond if I have to pay for claims?

A bond is not insurance, it is a form of credit where the principal (you) are responsible to pay any claims.  The alternative to a bond is to post cash or a letter of credit. Surety bonds are advantageous, as they typically require no collateral, which frees up capital.  Bond premiums are also similar to fees for letters of credit and are typically less than one would earn making conservative investments with the available capital.