A surety bond is a three-party form of financial credit also known as a bond guarantee. These guarantees bind together three parties, the principal, the obligee, and the surety. The principal is the party who needs the bond; the obligee is the party to whom the bond is paid if the principal defaults and the surety company is the one who sells the bond.
The bond is issued to the principal to ensure that the principal will act in accordance with his contract. If the principal does fail to act in accordance with said contract, then the bond will be issued to cover damages or losses. Surety bonds are a very important part of the business in North America.
This page will seek to tell you how surety bonds can make your business more credible, and why you should consider using them.
Which Sectors Require Surety Bonds Most?
What sectors need surety bonds the most, some ask? The professionals from SwiftBonds.com, the independent surety experts, say that surety bonds are most commonly used in the construction industry.
The construction industry uses surety bonds to ensure that jobs will be completed to the specification of the owner of the land on which the construction is being undertaken. It is used mainly by construction teams and subcontractors.
Many businesses and landowners make surety bonds required as part of the construction bidding process so as to notify the construction teams early. It ensures that the construction team or contractors employed will be honest and provide an honest accounting. It also protects you from unscrupulous bidders employed by your competition.
How Can Your Business Get a Surety Bond?
Getting a surety bond is simple. To get a surety bond, the principal must first establish that they have good credit and a good reputation. A surety company will thoroughly inspect your company’s history and also likely require that you show them evidence that you will be able to fulfil your end of the contract and have the tools necessary for you to do so.
If you are not deemed eligible, you may have to go for a more conventional bank loan.
How Can a Surety Bond Benefit My Business?
Surety bonds are unique, and unlike banks, they do not require you to provide security, such as your assets, or provide cash to support the bond. This makes you able to spend your money elsewhere and reduce your overall debt.
Surety bonds are a much more efficient alternative to a more traditional bank loan or guarantee. They are also much less complicated than other alternatives and much smoother.
How Long Does a Surety Bond Last?
A surety bond will remain valid for the entire duration of your contract and can be extended for a maintenance period, which will sometimes last for up to a year after the initial contract has been completed and is no longer active. This is a method incorporated so as to protect the obligee, or the landowner, in case any structural problems were to arise with the building.
This year-long period also enables the principal to complain or take the obligee to court for any disputes.
How Can a Surety Bond Make My Business More Credible?
Being willing to use surety bonds ensures credibility. Obligees will be more inclined to do business with a principal who has used and will continue to use surety bonds. Surety bonds reflect an honest businessman who has nothing to hide and is not worried about not completing the job to the specifications of which he has been requested to do so.
If a business owner or tradesperson is reluctant to take out a surety bond, this is a definite reflection of their untrustworthiness. A surety bond simply guarantees that the job will be completed properly and that if it isn’t you will be compensated.
You must then ask, why does the principal not want to be involved in surety bonds? The likely answer is because he either does not trust his capabilities as a tradesperson or simply does not want to incur debt if he does not complete the job in the way you have requested.
Where Can I Find a Surety Bond?
Surety bonds can be found quite easily, and most major loan providers will issue surety bonds. Most of the major insurance lenders will also issue surety bonds.
You should make sure you find the best deal available and ensure the company with which you are dealing is above board and does not charge too much interest. You should find the lowest rate available, which should not be hard as there are many providers.
Now you know a few things about surety bonds, and how they can boost your business’s credibility. Surety bonds are becoming more and more popular and by openly advocating them, you make your business look honest and trustworthy.