There is a common misconception that surety bond rates are the same for everyone. Many find out rather quickly that nothing could be farther from the truth. Surety bonds are not investment bonds, rather they are a form of credit. Suretyship underwriting reviews many of the same items that other forms of credit (ie mortgage) use to underwrite. I can almost guarantee that if an applicant has a high rate on their bond, they will also see a high rate on the loan for their home. All forms of credit assess risk and apply rates accordingly. Therefore, a high or low rate is usually a reflection on principal. From time to time there will be the exception of a principal getting a rate higher than they deserve. This is often the result of a bond being written through several brokers. Use the checklist below if you feel you qualify for a lower rate.
- What is the owner(s) credit score?
- Has the owner(s) ever declared bankruptcy?
- Does the owner(s) have any tax liens?
- Does the owner(s) have any unpaid collections?
- Has the owner(s) ever had a civil judgment placed against them?
- Does the owner(s) own a home?
- How old is the company?
- Did the company show a profit last year? The year prior?
- What type of bond is required? What is the risk involved? (ie performance, license & permit bond, etc.)
The above list are some items an underwriter will review when applying rates to a bond. Some items (such as the business financial statement) will be looked at in greater detail. However, the list will give you a decent idea of what a surety reviews. A bond rate can sky rocket (or worse yet, simply be declined) if any one of the items above do not meet the bonding companies guidelines.
If you feel your bond rate is too high, put it in perspective of other forms of credit. Do you qualify for the lowest rates? If so, review the above with your agent and question them as to why your rate is what it is.