Surety Bond News

So you are told you need a surety bond. You want to get up and running as fast as possible right? Today we are going to review what to look for in a bond agency and what you can do personally in order to get your surety bond fast!

Choosing the right agency:
The single most important thing you can do when in a time crunch is to choose the right bond agency to turn around your bond quickly. Obviously the rates they have to offer are important, but here are some other things you will want to consider in order to get your bond fast.

1. Are they brokering your business? – It is very common for bond agencies (especially smaller ones) to broker their business to a larger agency with access to more markets. The problem is that you are adding another middle man into the equation. This generally means a slower response time and often a higher rate.

2. Do they issue the bonds out of their office? – Many agencies have power of attorney with the carriers they work with, allowing them to issue the bonds directly out of the agents office. This allows for same day turnaround at times. If the answer to question #1 is “yes”, then you can almost be certain that they do no have the authority to issue bonds out their office.

3. What is their response time to your inquiries? – If an agency isn’t getting back to you within 24 hours with a question you have prior to paying them, there is little chance they will act quickly after you pay them.

4. Do they allow you to apply online? – An agency that still does not take applications online is likely not very technologically automated, which can make them slower to respond to the needs of their clients in comparison to the competition.

5. Ask your agent – Be sure to ask your agent what the average turnaround time is for an approval and for issuance. Some agents will make exaggerated promises of turnaround time, so you may want to request their response by email so you have it in writing.

Click here to apply with JW Surety Bonds!

What you can do to speed up the process:
Simply choosing the right agent doesn’t get you our of the woods yet. You will need to do some things on your end to make sure your original bond is in your hands as fast as possible.

1. Send everything your agent requests in a timely fashion – If your agent requests something of you, be sure to get it to them quickly. A good agent will not ask you to send anything unnecessarily. Most of the time, your application will not be submitted anywhere until you agent has everything they requested. Not sending your agent what they need could result in an extremely high rate or no response at all.

2. Have an open line of communication – Make sure you keep in close contact with your agent. You don’t want to call them unnecessarily and waste their time, but be sure that you are both on the same page. If you fax or email documents to your agent, it is a good idea to confirm receipt of them. Sometimes faxes and emails do not go through properly, which could cause a big delay in your approval or issuance.

3. Pay for overnight delivery – If getting your bond fast is extremely important to you then do not send any payment or original agreements by regular mail. You might be surprised to find out how often the U.S. Post Office loses envelopes. Situations can become even more hairy when cashiers checks are lost. Pay the extra $15-20 and make sure you send what is needed overnight w/ a tracking number from a reliable service like FedEx or UPS.

Each bonding company will set guidelines for qualification and many bonding companies have varied methods of determining if you qualify. Most of all, they agree that the applicant must be reputable and have a good record of performance. After all, a surety bond is a guarantee of performance! If a surety is willing to back up a contractor, they must be certain that the risk is minimal. The underwriters’ primary mission is to provide a guarantee of reliable service. The evaluation from any bonding company consists of four components: financial stability, integrity, longevity and capacity, which we will further discuss.

Financial Stability:
While this is considered the biggest component, if all other components are favorable, this should be easy to attain. Sureties are looking for financial statements to picture how your business operates. The statements must be well organized, preferably by a Certified Public Accountant (CPA) and clearly defined. Aging should be 90 days on the average and a good cash flow is required. Your credit history will be evaluated along with the history you have with your vendors and subcontractors. You must have a good relationship with your banker as well. These criteria and your capitol assets will determine your net worth.

Integrity:
You must show that you are respected in your industry and are worthy of obtaining a surety bond. Your business contacts must give you high recommendations to prove that you are in good character. Contacts such as customers, suppliers and even employees play a vital role in evaluating your company’s integrity. A bonding company must place their faith in you; and satisfying their concerns of your reputation is required prior to writing your bond.

Organization is a key element when assuring the integrity of your company. Any well-run business also is very organized from entry-level personnel to chief officers. Record keeping, management, accounting and account management will be evaluated as part of this process.

Longevity:
A surety obviously wants to see that you have been in business for a long time. What is more important are the mechanics of how you have survived thus far. How long have your managers and foremen been in tact? What kind of employment turn over do you have? Is it above or below the industrial average? What is your business plan? What details (employee stock options, retirement, investments) do you have to back up your plan? Will your company continue to perform after you leave? Basically, if you can provide evidence that your company will still be around after you die or retire, the bonding company is satisfied.

Capacity:
A smart business knows his or her limitations. Steady growth is positively a key element to the success of your company. A surety is keen to observe the “too much; too fast� syndrome. If the surety notices that you have taken on more work than you are capable, they will become nervous and may decline your bond application. If you are profitable and can stay the course of your business plan, the bonding company will notice that you have good discipline and are not “greedy� in your method of doing business. If you are considering expanding, be cautious about spending beyond your means, as this could be disastrous not only to your qualification but your business as a whole.

If a surety is satisfied after evaluation of these components, they will decide not only if you qualify but also for what dollar amount. You may be approved with limitations depending on the outcome of your evaluation however; some bonding companies will either approve or decline your bond amount for which you applied. There are circumstances where the surety will suggest bonding for a specific job as opposed to your company as an entity if they feel a high risk is involved. This will keep your premiums to a minimum until you are capable of obtaining larger bonds. After you prove your worth, they may extend or add more bonding capacity to your account.

The surety bond industry has and still is struggling to categorize commercial bond forms required throughout the nation. A surety bond is made up of the bond form attached to a power of attorney. The bond form contains the language of the guarantee, telling you exactly what the bond is guaranteeing. Unfortunately, there is an astounding amount of different bond forms throughout the country. Think of how many different professions there are throughout the nation, everyone from mortgage brokers to auto dealers need bonds in order to legally operate in most states. Now take into consideration that the Federal Government, each state, and local municipality requiring a bond will have their own form. A mortgage broker in New Jersey needs to post a separate bond if they plan in operating in Maryland as well. A contractor may have a bond to file with their state license and a separate bond for their local government. I think you get the picture.

The Surety & Fidelity Association of America (SFAA) has taken on the task of creating an online database of bond forms. The database is constantly growing with additional bond forms being added from industry professionals throughout the states. You can search the bond form database free of charge. The abilities of the search are quite versatile. One can do a broad search for types of bonds or extremely narrow for a specific bond form.

The SFAA has done the surety industry a great deed by taking the time to create such a system. However, there are some unavoidable downfalls to the system. The disclaimer is as follows, “The BNI is not intended to be a source of bond forms to submit to obligees. It assumes you have the proper bond form and need its number to aid in the submission of an electronic execution report. Although SFAA makes every reasonable effort to keep the BNI up to date, the number of bond forms used in the marketplace makes it impossible to assure either comprehensive coverage or incorporation of every change to an existing bond. SFAA, therefore, must disclaim any responsibility for the accuracy, completeness or currency of the BNI. By using the BNI you agree: (a) that you release SFAA from any liability arising out of such use, (b) that you will take appropriate steps to verify that the bond form you propose to use is the form required for the transaction, and (c) that you will tell SFAA if you discover that a bond form in the BNI is no longer current or is otherwise incorrect.”. This means that you can not count on the system to ensure you are using the most up to date copy of a bond form. Unfortunately, obligees do not notify the SFAA when a bond form is updated. Relying solely on the SFAA’s system could result in a rejected bond due to use of an incorrect bond form. One might ask what good is the database if you can not count on the bond forms being up to date. I believe the system is currently good to find a clean copy of a bond form. I am more so hopeful for the future of the database, in hopes that obligees will eventually take the responsibility to update the system to make the bond process easier for all.

For whatever reason, it seems that many in need of a bond, procrastinate in getting the process started. This often ends in the obligee stopping the principal from operating, or not allowing them to start operating when they would like. Frustrations such as this can be avoided if one pays closer attention to state requirements and bond expiration dates. Obviously, no one is perfect and sometimes due to an oversight, you need your bond yesterday. In fact, it seems that roughly half of our clients ask us to put a rush on their bond. Since almost everyone wants their bond right away, the only fair way for us to operate is on a first come first serve basis. However, there are some items that the principal can do in order to speed up the process.

1) Be sure to respond to agent questions in a prompt manor. If your agent is asking for additional information, then give it to him/her as soon as you can. The agent will not ask for information if it is not necessary. Your application can not move forward until the requests are met.

2) Make sure all information is accurate and clear. Providing an agent information that is unclear will usually result in the agent contacting you to clarify. Misinformation could create bigger problems. A blatant lie could result in fraud charges. Stretching the truth could result in a particular bonding company declining the account based on misinformation. This would force the agent to re-market the account, adding additional time to the approval process and possibly increasing your rate.

3) Keep your agent informed of any previous bonding experiences. The surety industry is relatively small. Therefore, it is a good idea to inform your agent of any past bonding you have had.

• What was your previous surety? Telling your agent what bonding company you were previously with will prevent him/her from wasting time by submitting to that surety.
• Why did you leave them? If you left a bonding company, you should let your agent know why so they do not submit your application to a similar company. If the previous company decided no longer to write you, the agent should have a good idea as to who would be willing to.
• Have you applied to any companies recently? Many bonding companies will decline an applicant if they receive the same submission from multiple agents. They feel this is a reflection that the principal is in a desperate situation and not a good risk to write.

4) Spend the additional money on shipping overnight fees when necessary. Often, bonding companies will require original copies of indemnity agreements prior to issuance. Be sure not to ship the agreement regular mail if you are in a rush. Overnight services offer tracking and require delivery signatures, ensuring you save time.

Many of the above tips are common sense, but many of our clients seem to get frazzled, especially if they are new to bonding. JW Bond Consultants will always work hard to process all requests in a timely manor. However, certain aspects are in the hands of the client. If you follow the tips above, you will obtain your bond sooner, whether we write your bond or any other agency.

Surety bonds can look like a more expensive alternative to posting an irrevocable letter of credit. However, if you look deeper into the costs of each, it is clear surety bonds are the obvious choice. In this article we will review view an example to demonstrate the cost differences between the two. We will also go into depth on how a bank makes money off of a letter of credit versus how a bonding company makes money off of issuing a bond. After you have read this article you will want to make use of your surety credit whenever possible, as there are numerous benefits over letters of credit.

What is a letter of credit and how do they work?:
An irrevocable letter of credit (ILOC) is a letter addressed by a bank guaranteeing the account holder is “good for” a certain amount of funds. The letter of credit is held by the obligee. In the event of a claim, the obligee can draw on the funds held by the letter of credit. In order to ensure the account holder actually has the funds available to pay for a potential claim, a bank usually freezes the full amount of the ILOC in cash. In other words, if you need a $300,000 ILOC, then the bank usually holds onto the full $300,000, not allowing you to touch the funds until the ILOC is released.

What are surety bonds and how do they work?:
A surety bond is a three party agreement involving a principal (the party obtaining the bond), an obligee (the party requiring the bond of the principal), and a surety (the carrier backing the bond). The principal pays a service charge for the surety to guarantee performance. The principal makes use of the surety’s financial strength rather than having a bank hold onto their assets. Collateral is only required in high risk scenarios.

The REAL costs of letters of credit and surety bonds:
Often, people will argue that a letter of credit is less expensive than a surety bond and are therefore the better choice. However, people who believe this are not looking at the big picture. Lets take a look at a $100,000 example. An ILOC generally costs about 1%, or $1,000 a year. A typical surety bond rate in a standard market is about 1-3%, or $1,000 to $3,000 a year. When you just look at the up front costs, a bond is either the same or more than the ILOC. In order to make a true comparison, one must look at the real costs of an ILOC. Remember, a letter of credit requires you to tie up the full amount in cash where a bond typically requires no collateral. If you were to invest the capital you freed up by using a bond in a money market account you could currently make anywhere from 3-4%, or $3,000 to $4,000. This makes it so the true cost of a letter of credit raises to about $4,000 to $5,000 a year.

If you qualify, a surety bond is clearly a better choice over a letter of credit. A surety bond frees up capital that a letter of credit would otherwise tie up. Increased liquidity from surety bond use make day to day operations run smoother. A surety bond may seem to be the same price or more expensive at first look. Looking deeper, it is quite clear that a surety bond not only gives you more liquidity, but also at a cheaper price.