Surety Bond News

In this week’s article we will review what makes a good surety company, and more importantly, what makes a good surety company specifically for you. Before we get started, I should mention that pairing you up with the right bonding company is really your bond producer’s job (see: What Makes A Good Bond Producer?). The reason we are writing this article is for the people that like additional comfort that their agent is doing their job properly. So lets get started in learning why some surety companies are better than others and how subtle differences can make a big difference to your company.

A.M. Best Ratings
A.M. Best is a well established credit rating system that grades the stability of surety companies. This is extremely important, as sometimes a bond will not be accepted by an obligee if the surety’s grade is too low. Typically a B+ grade or higher is accepted, but you will want to find out if the obligee has any specific requirements. Most bonding companies do not offer refunds on the first year’s premium, which would mean you purchased an expensive piece of paper!

Department of the Treasury’s Listing of Approved Sureties
The Treasury Department’s Circular 570 lists what bonding companies are certified to bond Federal projects. If you are in need of a bond to meet a government requirement, you will want to make sure the surety is on this list. Purchasing a bond from non-T-listed company could also result in a useless bond!

Turnaround Time
Not all sureties have the same turnaround time. With bonds being such a crucial part of your business, you need to make sure that your agent and the carrier have fast enough turnaround time (within reason). If you are getting everything your agent requested of you in a prompt manor, the agent and the carrier he/she set you up with should respond in an expeditious manor as well. Unfortunately, there is not much you can do to avoid this and you may need to do some trial and error. Your agent should know what markets are particularly slow or fast in their region. Keep in mind many sureties have branches and not all branches have the same turnaround time. This means you will need to mainly rely on the knowledge of your agent.

File Updates
All bonding companies are going to ask for file updates from time to time (with the exception of smaller commercial bonds). Typical file requests are updated business and personal financials at year end and sometimes mid-year for larger accounts. It is rare, but sometimes a surety will get a bit out of hand with the amount of updates requested in comparison to other carriers. If you feel they are consistently asking for too many updates, then talk to your agent about it. If your agent agrees that you are being required to send an abnormal amount of information then you may want to further discuss finding a new bond carrier. Once again, this is something where you will heavily need to lean on the knowledge of your agent, as you do not want to change sureties unnecessarily.

Rates
When it comes to commercial surety bonds, rates can vary dramatically. Contract surety bonds do not vary quite as much, but are typically larger bonds, so a small rate change can make a big difference when it comes to the premium. Talk to your agent about what carriers would consider you and what their filed rates are. Do not try to compare your situation to someone else’s, as each applicant is different and comparing rates from one to another simply does not make sense.

Indemnification Requirements
It is rare, but there are a small amount of bonding companies willing to bond companies without personal indemnification. Obviously, Fortune 500 companies are regularly written without personal or spousal indemnification, but what about the mid-sized companies? If the issue is very important to you, your agent may be able to get your bond approved without the regular surety indemnification requirements. However, you should know, it is extremely rare these days (a company must be very financially strong) and will often result in the compromise of something else (e.g. a higher bond rate).

Shopping for a surety bond is usually new to most of our clients. Typically, people feel very lost, as the entire process is new to them and they often don’t even know what they need. Here is a quick list to bring you up to speed on five things anyone shopping for a surety bond quote should know.

1. What is a surety bond?
Our regular clientele are required to post a surety bond in order to run their business, but they have no idea what the bond is or what it actually does. To put it simply, the bond is a guarantee of your performance. The bond form (provided by whoever is requiring the bond of you) states exactly what the bond is guaranteeing, usually a statute or contract. For more detailed information see our video tutorial, “What is a surety bond?.

2. How does a surety bond work?
A bonding company backs a bond guaranteeing your company’s performance. In return, you pay a premium, which is a percentage of the bond amount. If you fail to perform per the terms of the bond, a claim may be placed against it. If the bonding company pays out on a claim, they will then turn to you for repayment.

3. Shopping with too many agencies can be risky
Some bonding companies will actually decline an applicant for all agents if they receive the applicant from too many different agents. This doesn’t mean that you can’t apply with more than one agency, but you will have to ensure that the agents do not apply to the same carriers.

4. Take verbal quotes with a grain of salt
When shopping for anything, you want to know the cost right away. Unfortunately, one size does not fit all when it comes to surety bond rates. Without applying, the best an agent should be able to do is give you a range, not a precise quote. Agents giving you an exact rate are usually giving you the lowest possible rate, which everyone does not qualify for.

5. Give yourself enough time
Many of our clients apply for their bond weeks or even months prior to when they need it. However, some wait until the day they actually need the bond to call their agent to say they want to move forward with an approval. You should know that all bonding companies are going to require you to sign an agreement prior to allowing the agent to issue the bond. In most cases, an original agreement and payment must be sent to the agency to get the bond issued. After that, it is not reasonable to expect same day turnaround on bond issuance (1-3 business days, depending on volume is our current policy).

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.

The term “licensed & bonded” is frequently used for marketing purposes in an attempt to make a company’s potential clients feel safe doing business with them. In fact, the phrase itself is all your average person knows about the surety bond industry. In this article, we will learn what it means to be “licensed & bonded. More importantly, we will learn how to become licensed and bonded.

What does it mean to be “licensed & bonded”?
Most people are aware what it means to be licensed. However, we should reiterate the purpose of a license. A license means that you have learned rules, regulations, and practices that the governing body requires you to be familiar with. Furthermore, it means that the licensee is capable of doing the work at hand. The license ensures you do the right thing, you passed the test and therefore you understand the difference between right and wrong and are held accountable for it. Not following the rules could result in loss of the license and possibly the ability to work in your particular industry in a specific area, a state, or even the entire country.

If a license does all of the above, you might ask yourself, why is there a need to be bonded? The license assures a client that the licensee knows the rules, but a bond guarantees that they will follow them. That’s right, in the event that the licensee breaks the rules of the said prevailing governing body, a claim can be filed against the bond to recoup losses for those negatively effected.

How do I become “licensed & bonded”?
You will have to do some legwork to find out who regulates the license you are looking to obtain. You will want to ask the licensing department what their requirements for obtain a license are to ensure you can meet all of their standards (Also see: How To Become Bonded). Some common requirements include, but are not limited to: passing a test, meeting certain financial requirements, industry experience, clean criminal records, and of course, a surety bond. I can not comment too much on licensing requirements, as they vary greatly depending on occupation and the location of where you are planning on operating. Fortunately, I can go into great detail about getting bonded! As stated above, you are going to want to make certain you can meet all of the requirements to qualify for a license. This is extremely important, as most bonding companies will not do pro-rated returns on cancellations of first year bonds. To get bonded, you will need to find a bond producer (also known as a bond agent). Just as in any profession, the level of competence varies greatly. If you are in need of a bond producer, you should read our article What Makes A Good Surety Bond Producer.

Be sure to give our agency a chance at wowing you with our competitive rates, fast service, and expertise in the field. We are the first and only agency to date that offers true online surety bond approvals at no charge. You can obtain a 100% free quote with no obligations by visiting our applying now.

What if I don’t need a bond for my license?
Some licensed professions do not require you to post a bond. Clearly this is a bad idea for public interests, as there is nothing to stop a licensee from breaking the rules, and even worse no guarantee that those effected will be compensated in any way. Many licensees ask us if we can bond them to make their clients feel more comfortable. Unfortunately, it is an impossibility, as a bond is a three-party agreement and some governing agency must require of you. Otherwise, the bond is not guaranteeing any specific rules and regulations…and a bond that isn’t guaranteeing anything doesn’t do any good other than providing a false sense of security.

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.