Surety Bond Rates
Surety bond rates are used in a formula to determine your bond costs. Below we will explain what bond rates are, how they are used to calculate bond costs and what factors are looked at when determining your rate.
Bond Rates: A Simple Explanation
Your rate is the percentage of the full bond amount you need to pay, and a direct reflection of how risky you appear to the surety companies. Rates will vary depending on your likelihood of causing claims by failing to follow through with what your bond guarantees. Keep in mind, if you cause bond claims the surety company will pay them at first. However, when a surety company writes a bond they are vouching for you by saying if you trigger bond claims, you'll pay them back in full (which can be as large as the full bond amount).
How Is Your Risk Determined?
Surety companies will get an idea of your risk for causing bond claims by looking at how you handle your financial responsibilities, which is usually done by reviewing your personal credit. When it comes to larger bonds, surety companies will look deeper by reviewing your personal credit, business credit, personal/business financial statements, your industry experience and anything else the underwriter can get their hands on to give them an idea of your likelihood to cause claims. In today's digital world, underwriters will also use search engines and social media to see what they can gather on you. Your risk can also be boosted by what your bond guarantees, as some bonds are considered riskier than others due to the large number of claims that occur.
Construction Bond Rates
Contract bond rates for performance bonds are typically higher for smaller jobs, as the bonding companies usually approve them based on personal credit alone. As the bond amount grows, the underwriter will use the typical factors listed above to assess your risk. The most heavily weighted and most scrutinized item is often your business financial statement. Therefore, it is imperative that your CPA uses the proper method and appropriate details for your financial statement. If you don't have CPA prepared financial statements, you can still qualify for smaller contract bonds using tax returns instead. Read our guide to learn more about how performance bond rates are determined.
How To Get The Lowest Rate
There is quite a bit that goes into getting the lowest construction bond rates. However, getting the lowest rate on a license and permit bond is a bit more simplistic. If you are a contractor that uses bonds regularly, your rate could make a big difference on your overall competitiveness on bids and ultimately your net profit. It is a good idea to do your homework and make sure you do everything you can to assist your agent in getting you a good rate.
How are premiums calculated?
Surety bond rates are usually given as dollars per thousand, represented by a dollar amount with a capital 'M' (the Roman numeral for one thousand). The formula for determining the premium is: BOND AMOUNT x RATE / 1000.
Surety Bond Rate Example Table
|$10 / M||$15 / M||$30 / M||$50 / M||$75 / M|
|$5,000 Surety Bond||$100*||$100*||$150||$250||$375|
|$10,000 Surety Bond||$100||$150||$300||$500||$750|
|$12,500 Surety Bond||$125||$188||$375||$625||$938|
|$25,000 Surety Bond||$250||$375||$750||$1,250||$1,875|
|$30,000 Surety Bond||$300||$450||$900||$1,500||$2,250|
|$50,000 Surety Bond||$500||$750||$1,125||$2,250||$3,750|
|$75,000 Surety Bond||$750||$1,125||$2,250||$3,750||$5,625|
|$100,000 Surety Bond||$1,000||$1,500||$3,000||$5,000||$7,500|
Author: Eric Weisbrot
Eric is an industry expert that specializes in taking complex surety concepts and explaining them in terms that make sense to the general public. He also manages the JW Surety Bonds website and works with various partners to help further educate the public on suretyship using various mediums.
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