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How Surety Bond Pricing is Calculated
Surety bond pricing is based on a percentage of the full bond amount being required (called the premium), which is usually anywhere between 1-10%.
The premium is based on your financial strength, e.g. personal credit. Other items such as your business/personal financials, and industry experience may be analyzed as well.
However, the type of bond that you need can also drastically affect bond costs as well. For example, some obligees (the ones requiring the bond) require higher bond amounts in certain industries, or for varying purposes.
For instance, freight brokers must obtain a $75,000 surety bond. Generally speaking, the higher the bond amount that's required of you, the higher the cost will be since bond costs are calculated using the bond amount. On the contrary, a contractor license bond required by a local municipality is often a smaller amount (e.g. $10,000), which means you'll likely have to pay a lower price.
Surety Bond Pricing Calculation Example
Let's pretend that you must obtain a $25,000 bond, and the rate provided based on your credit history, business financials, and experience in the industry is $15 per thousand; this would mean that the cost of your bond is $375, or 1.5% of the required bond amount. If you have poor personal credit or minimal industry experience, your rate may increase.
If we take the same $25,000 bond, but use a rate of $50/M, the cost of your bond would be $1,250 (or 5% of the total bond amount).
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