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What Does A Surety Bond Cost?
By: Michael Weisbrot
One of the first questions people ask when they are purchasing something is,
“What does is cost?”. There is no exception when it comes to surety bond
shopping. Unfortunately, bonds are really considered a form of credit and the
same rate does not apply to all applicants. It is not that agents do want to
give you a better idea of the costs of a bond, it is that they can not without
applications being completed.
Usually, once a principal is told that bonds are really just a form of credit
they respond with “My credit score is…What would the rate be for me?”. There are
very few surety bond programs that are written exclusively on personal credit.
Therefore, a rate can not be given from the owner’s personal credit information
alone. Rates are typically underwritten based on, but not limited to: business
financial statements for the company, personal financial statements for the
owner(s), personal credit history of the owner(s) (not only the score), owner’s
resumes, etc. For an agent to tell the principal the cost of the bond he/she
would have to review a good amount of information.
Often, when a principal hears that they can not obtain a quote without completed
applications they will want a ballpark figure. While a good agent can get an
idea of where an applicant might fall, it is far from being accurate. For
instance, a standard market rate for commercial surety bonds are around 1-3% of
the amount of the bond. However, there are numerous factors that could put an
applicant into a high risk market which is closer to 15% of the amount of the
bond. As you can see, agents are hesitant to give a “ballpark figure” when the
range is so large.
If you are a principal shopping for a bond let me give you this bit of advice.
Do not simply complete applications for every agency you can find. Do some
research, as the knowledge of agents varies by a frightening amount. Our
industry is small, but still has it’s fair share of what I call “paper pushers”,
not agents. An agent will review your file and submit it to a couple of bonding
companies where he/she feels you will obtain the best rate for your unique
situation. A “paper pusher” will simply submit your application to every surety
they are appointed with. You might think that these paper pushers are doing you
a service by submitting you to more companies, but they are doing quite the
opposite. For one, some sureties will pull credit on a principal whether the
agent submitted the application with a credit report or not. This could result
in a long list of credit inquiries which could drastically effect the owner’s
personal credit. Some bonding companies will also turn down principals if they
receive the application from more than one agent. The sureties that practice
this policy feel that the principals look desperate and do not feel comfortable
extending them their surety credit. I am not saying you should only submit to
one agent, but be sure to communicate with all agents involved that they are not
the only agent. Also, be sure to find out what bonding companies each agent will
be submitting to. These simple precautions could save you from tremendous
headache down the road.
When looking for a surety bond, know that you will not be able to get a good
idea of the cost until the agent is able to review your applications. Some
agents may be willing to give you a ballpark figure, but keep in mind the
ballpark is quite large in size and your actual quote can vary greatly. If you
decide to use more than one agency, be sure you choose them wisely and keep
communication as to what bonding companies the agents are submitting to.
About the Author:
Michael Weisbrot is Vice-President of JW Bond Consultants, Inc. a surety bond
only agency.http://www.jwsuretybonds.com |
