Subdivision Bond Guide
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Why do you need a subdivision bond?
You are required to obtain a surety bond for working on subdivisions to protect the public. If you do not make improvements to public property as agreed upon in the developer's agreement, a claim can be made.
It is unlikely. However, it is possible if you have strong business or personal financials. Apply on our website to determine if you qualify for subdivision bonds.
Yes. The age of your business does not affect whether you can obtain this bond. The most significant factor considered for qualification is approved financing for the job, followed by your experience in the industry, financials and personal credit.
No. Unless you can prove you are self-financed, you will be ineligible for a bond because the surety will view you as a high risk to not complete the work.
If a developer does not make the required additions or improvements per the developers agreement, the obligee will file a claim on the bond. All legitimate claims must be reimbursed by the developer.
You need to get it from the obligee, as there are generally no industry standard bond forms for this bond type. However, New Jersey is an exception as it does have a standard form for Townships, which we have on file.
Obtain a bond, as it is the better option for multiple reasons. The bond only requires an annual premium payment, which is a percentage of the contract amount. The letter of credit requires you to post 100% of the contract amount, tying up your funding, while the bank charges a fee for holding your funds.
The bond comes with a team of claim specialists that will help fight any false claims. With a letter of credit, there's often no claim investigation. The government entity holding the letter of credit can draw down on it anytime they feel there is a breach of the developer's agreement, which makes your working capital vulnerable. For larger companies who choose the bond, surety companies can finance you if you get in to tight cash flow situations.
No, a subdivision bond guarantees your improvements or additions on public property. A performance bond guarantees your work for a specific job. The state of New Jersey inaccurately calls subdivision bonds performance bonds.
Surety Bonds do not protect you
The bond is a form of insurance for your clients, which is why many businesses proudly list that they are bonded on their marketing material. However, you will be required to reimburse the bonding company should a claim be paid out.
Fidelity Bonds protect your business
You can protect your business from employee theft and fraud by purchasing a fidelity bond. You can read more in our fidelity bond section.
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