Surety Bond News

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?”. Most surety bond programs are not 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 completing applications, they 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”, rather than 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.

There are thousands of different surety bonds in the United States alone. One of the most common types are license bonds. Simply put, these bonds are required by the government in order to obtain a license to legally operate a business.

Often, people ask, “Why Do I Need A Surety Bond For My License?”. To fully understand why the bond is required, you must first know how a surety bond works. First you must understand the parties involved in the bond. There is the ‘obligee’, or who is requiring the bond (ie licensing department of the state). The ‘principal’, or the business/individual required to obtain the bond. Finally, there is the ‘surety’, or the bonding company financially backing the bond. To review, the obligee requires a bond of the principal, who obtains it from the surety (usually the principal must deal with an appointed agency rather than directly with the surety).

Now that you know the parties involved with a surety bond, you will want to know what it does/covers exactly. In the event of a claim, the surety will make sure it is valid. If the claim is valid, the surety pays the obligee the amount of the claim up the the amount of the bond. The obligee (typically the state for license bonds), will then distribute the funds to the principal’s client(s) that were effected. Therefore, it is the principal’s clients who are truly the benficiary in the event of a claim, not the principal as with typical insurance.

Understanding the parties involved in a bond and how it works in the event of a claim is not the full picture. You should also know what you are actually paying for with a bond. Bonds are not insurance, they should be thought of as credit. The surety will turn to the principal for repayment of a claim and any legal fees.

It is currently an industry standard to have principals and their spouses personally indemnify for the bond. This worries many, as this gives the right to the surety to go after the principal’s personal assets to recoop losses from a claim. However, bonding companies will not go after the owners personally right away. After a claim is paid out the surety will send the principal (the company that purchased the bond) a bill for the amount paid out to the obigee and legal fees incurred. If the business fails to pay, the bonding company has the right to go after the owner’s personal assets.

Why would anyone want a bond if they have to pay the surety for a claim? It is quite simple, the alternative is a letter of credit posted directly to the state. In other words, you would have the full amount of assets frozen and you would be paying the bank for the guarantee. For strong accounts, a surety bond is the same rate or even less than a letter of credit. Therefore, it makes no sense to tie up capital and pay the bank a fee that often costs about the same as the bond.

To summarize, a bond is not insurance, but should be thought of as surety credit. A claim will pay out to the obligee (the state), who will distribute the funds to the principal’s client(s) that were effected by the principal’s negligence. If a claim is paid, the surety will look to the principal for repayment, per the terms of an agreement signed prior to release of the bond. The alternative is a letter of credit, which usually costs roughly the same price, but will tie up capital that could be better used. Surety Bonds have been around for quite some time now, and will be here for quite some time to come.

You can apply for a license bond online.

If you have any surety related questions visit the Surety Bond Forums.

I was browsing the web the other day seeing what others in the surety bond industry are currently doing. I saw several agencies claim “The Fastest Approvals”, “The Quickest Turnaround Time”, etc. Unfortunately, many advertised statements just simply are not true, but you didn’t need me to tell you that! The agencies required that their applications be faxed in for approval. From this requirement alone, I knew that they were not “the fastest”, I’ll explain more in a bit. Other agencies allow you to apply online, however the way they have it set up it only cuts out the use of the fax machine and does not speed up the process what so ever.

After seeing web site after web site I realized that our agencies unique service truly is “The Fastest”. Our online applications give you a written approval and your premium rate immediately upon submitting your application! I always knew that our web site offered an abundance of services, but I never realized how far ahead our agency is compared to others that are supposively “fast” and technology oriented.

There are a couple reasons why JW Bond Consultants, Inc. can offer instantly approved applications and the others can’t.

• The volume of business that we write allows us to have exclusive programs set up with our bonding companies, which allow us to approve the bonds in house.

• We are constantly researching the best ways to produce bonds in the most efficient manner, with a large emphasis on technology. Saving our clients time also saves us time allowing for the most efficient operation possible. Efficiency is mutually beneficial to us and our clients.
• Many agencies will broker out business to help expand the amount of programs they can offer. Fortunately, we have 16 different sureties at our disposal and have the authority to write the bonds in house and sign on behalf of the bonding company. This not only cuts out lost time due to sending overnight packages from agent to agent, but it also prevents multiple agents putting additional fees on the cost.

How Most Agencies Operate:
Most bond programs require you to complete an appointed agencies applications. The agent must then review the application and send it to the appropriate bonding company. The bonding company’s underwriters must then review the file and then issue an approval (if additional information is not requested first; such as cash verification). The agent must then prepare personal and corporate indemnity agreements between the principal’s company and the bonding company. Once the agent has received the original copies of the signed indemnity agreements they can issue the bond. If the agency does not write the bond in house and sign on behalf of the bonding company then you will lose more time when they have to over night the bond to the individual that has authority to sign on behalf of the surety.

Instantly Approved Bond Applications:
I am sure you are tired of all the bragging I am doing about our agency, but we truly are proud of what we have to offer. So let me cut the chase, here are the bond types we currently have to offer online approval for:

• Mortgage Broker Bonds
• Mortgage Banker Bonds
• Surplus Lines Broker Bonds
• Title Agency Bonds
• Bad Credit Bond Program – For any commercial bond type that is not listed above (ie Motor Vehicle Dealer Bond)

Not All Bonds Can Be Approved immediately:
Now I don’t want to give you false impressions about what our agency can and can not do. While it is true we do have some bond classes that can be approved online, we also offer bond types that require more than a simple online application such as: contract bonds, commercial bonds over $100K, court bonds.

You can apply for any of our bond classes in our Application Section. Should you have any questions, click the “Live Help” button (found on all pages of the site) to chat with an agent one on one online.

There are numerous factors that are taken into consideration when underwriting a surety bond. For a license and permit bond the owner(s) personal credit, home equity, and net worth are deciding factors on whether to decline or approve, and at what rate.

One factor overlooked by many is the state’s bond form for the specific bond you require. This is a very important factor, as it states what the bond is guaranteeing.

The sureties are always going to be looking for a cancellation clause and an aggregate limit clause; a bond form lacking these clauses will certainly be difficult to get approved, and even harder to obtain a reasonable rate.

Some bonds are simply riskier than others due to the type of work that is being done. For instance, ICC bonds are becoming more difficult to write without collateral. Most sureties are shying away from the bond completely due to the high number of claims associated with this class of business.

Dealer bonds are more difficult to write in Florida and Texas due to high claim volume. Some sureties simply refuse to write the bonds, which makes rates less competitive for the sureties that will approve them.

So next time you call a surety bond agent, don’t ask “I need a $10,000 bond, how much does that cost?”. There are simply too many factors that determine pricing, and any agent worth a grain of salt will know not to give you a quote when he/she clearly knows that the rate can change dramatically from many different factors.

The conservative surety bond market is here to stay. Fortunately, some sureties are starting to loosen up with certain classes of business.

Sureties are saving time and money by allowing their most trusted/largest producing agencies to approve less hazardous classes of business in house. What does this mean for someone in the market for a surety bond? The market is making a change, for the better. The bonding companies are not as liberal as they were in years past, but are being less conservative with bond types that have only a small amount of bond claims.

JW Bond Consultants, Inc. is one of the leading online agencies, you will find us on any search engine (many times listed #1 due to our strong online presence and useful site information). This being said, we bring our sureties more business then our competitors. In return our sureties offer us larger bond lines, exclusive bonding programs, and in house authority to approve and issue bonds.

Any good agency will always keep an eye open for specialty markets. We are constantly looking for sureties to write hard to place classes of business at the best rate possible. Classes of business that come to mind are Subdivision bonds & Site-Improvement bonds. These bonds have become one of the most difficult classes of business to write and furthermore, only about 3% of the current bonding companies in the country will consider writing this class of business. These bonds are required by government entities for either new homes being developed, or simply for new public improvements made to an existing property.

JW Bond Consultants, Inc. has multiple markets that write Subdivision bonds & Site-Improvement bonds with NO COLLATERAL requirements. We can get bonds approved with aggressive terms usually within 24-48 hours.

Lastly, most difficult class of business for contract surety bonds is Multi-year service oriented contracts. JW Bond Consultants, Inc. has markets that will write 1,2 3 up to 5 year contract terms with exceptional terms. Most bonding companies pull away for any contract over 2 years. Give us a call for this incredibly difficult class of business to write. Multi-year service contracts – WE CAN DO!

One of our newest programs is our Mortgage Broker – Instant Approval Program. It has been so successful we have now introduced the program for the following classes of business:

• Mortgage Banker Bonds
• Mortgage Lender Bonds
• Surplus Lines Broker Bonds
• Title Agency Bonds

We even offer the “Instant Approval Program” to brokers/agents to add to their company website as a service to their clients. We help you add the necessary forms to your company website and your agency gets 10% commission. Cut down the paperwork at your agency now and join us as we enter the digital age. If you are an agent we invite you to apply to add instant approval to your website.

If you have having problems with your hard to place surety bonds then call us now at (888) 592-6631, one of our agents will be glad to help you place the business in the appropriate specialty market.