Many new business owners discover that they must meet numerous requirements to legally operate their businesses. In addition to obtaining zoning permits, registering your business with your state's secretary of state, and getting a federal employer identification number, you might also discover that you have to get a license to operate in your state.
Most types of business licenses also have bond requirements as a condition of licensing. For example, if you plan to open a car dealership, you will have to purchase an auto dealer bond as a condition of obtaining your dealer license. Licenses are also required for many other types of businesses. If you find out that you will have to purchase a $25,000 surety bond, you might think that the bond price is prohibitively high and will make it more difficult to start your company.
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Fortunately, the bond price of a $25,000 surety bond will be much lower. Instead of having to pay the total bond amount to purchase your bond, you will only have to pay a bond premium. The surety bond premium will be a small fraction of the face value of the surety bond. Here is what you need to know about the surety bond cost of a $25,000 bond and how the bond price is calculated.
How Are Bond Prices Determined?
Surety bond rates are calculated during the bonding process through the company's consideration of several underwriting factors. The bond price will be a percentage of the maximum amount of the bond. For a $25,000 surety bond, the $25,000 represents the maximum amount or penal sum the bond company will have to pay to a claimant who files a valid bond claim.
If a bond claim is filed, you will have to repay the surety company for all amounts it paid or risk legal liability. This is because of the indemnity agreement you will have to sign at the time you purchase your bond through which you will agree to hold the surety harmless for your legal violations or misconduct.
You can start the bonding process by submitting an application and financial documents to an insurance company or surety bond company. The surety will want your business's name and phone number, bank account statements, assets and liabilities schedules, and other key information. Once you submit your application and other required documents, your materials will go through the underwriting process through which the company will evaluate your risk.
As a part of the process, the company will perform a credit check and review your income tax and banking information. If your credit report shows that you have good credit, the company will likely view you as a low risk and provide you with a free quote of a low bond rate. However, if you have a bad business or personal credit score, the company will likely think you are a higher risk and either deny your application or provide you with a higher premium quote.
The surety bond premium is the amount you will have to pay to get your bond and is a percentage of the total surety bond amount. The percentage will be lower if you have good credit or higher if you have bad credit.
While multiple factors are considered, your credit score is among the most important. If you have a high credit score, you might receive a quote ranging from 0.75% to 1.5% of the total bond amount, or $187.50 to $375 for a $25,000 surety bond.
To see some ballpark estimates of surety bond rates for different ranges of credit scores, refer to the list below:
- 700 and up - $187.50 to $375 (0.75% - 1.5%)
- 650 to 699 - $250 to $625 (1% - 2.5%)
- 600 to 649 - $625 to $1,250 (2.5% - 5%)
- 599 and below - $1,250 to $2,500 (5% - 10%)
Your actual bond cost might vary from the above-listed estimates based on the factors considered during the underwriting process. To receive a free bond quote, you can submit your online application. If you are offered a bond and choose to pay the premium, the company will then give you a bond form to show the licensing authority that you have been bonded.
How to Get a $25,000 Surety Bond With Bad Credit
Some surety companies will not agree to underwrite bonds for applicants with poor credit. If you have marks on your credit history, however, you can still get bonded by going through a bad credit program.
Your surety company might ask you to submit additional financial information to ensure that you have enough capital to pay for any losses while also operating your business. Once you obtain your bond, work on improving your credit to get a more favorable bond rate in the future when you renew your bond.
Most Common $25,000 Surety Bonds
Bond requirements vary from state to state and city to city. While you might have to get a $25,000 surety bond to operate your business in one location, the cost of your bond could be lower or higher in a different jurisdiction. Some types of surety bonds that might require a $25,000 total bond amount include the following:
Posting a $25,000 surety bond will not mean that you have to pay the $25,000 bond amount. You will instead only be required to pay a small percentage upfront to get bonded. After you get your bond and your license, make sure to maintain a good credit score and avoid bond claims to build a strong business reputation and get better bond rates in the future.