If you are a business owner or an entrepreneur who is preparing to open a new business, you might learn that you will be required to obtain a license to legally operate and post a bond as a condition of getting a business or dealer license.
You might also need to post other types of commercial bonds or contract bonds based on the type of business you plan to operate or as a requirement of a contract.
Calculating Surety Bond Costs
Bonds are a cost of doing business for many types of businesses. Finding out that you need to obtain a $75,000 bond might seem overwhelming. However, you won't have to pay the total bond amount of $75,000 to purchase your bond.
Surety bond rates vary based on your credit report and other factors. The bond company will conduct a credit check, and you will receive a bond quote for a percentage of the face value of your bond. This is called a bond premium. The bond premium is the amount you will be required to pay up-front to secure your bond as a percentage of the total amount of the bond.
The surety bond cost is determined during the underwriting portion of the bonding process and will be based on multiple factors, including your business and personal credit scores. If you have good credit, you can expect to pay a lower percentage. By contrast, if you have bad credit, you might either be denied the bond or have to pay a higher percentage up-front to obtain it because of your higher risk.
Information the surety company might need when you submit your application includes:
- Working capital
- Resumes for yourself and other key stakeholders
- Experience with past projects
- Business address and phone number
- Bank account information
- Letters of reference
For example, if you have an excellent credit score, extensive experience, and a strong reputation, you might receive a quote of 0.75% to 1.5%. For a $75,000 bond, this would mean that you would have to pay from $562.50 to $1,125 up-front.
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The $75,000 face value of the bond is called the penal sum, which is the maximum amount that the surety company would pay if a valid bond claim were filed against your bond. However, you will have to sign an indemnity agreement with the surety company and would have to reimburse the surety for any amounts it paid on your behalf up to the bond's penal sum.
Some examples of what you might expect to pay for your bond price based on various credit score ranges include the following:
- 700 and above - 0.75% to 1.5% or from $562.50 to $1,125
- 650 to 699 - 1% to 2.5% or from $750 to $1,875
- 600 to 649 - 2.5% to 5% or from $1,875 to $3,750
- 599 and below - 5% to 10% or from $3,750 to $7,500
These examples are just ballpark estimates. The cost of your bond will depend on its type and the bond company's evaluation of various underwriting factors. The surety company will want to see that you have a good credit history and enough working capital to conduct your business operations. If you have good credit, you will be considered to pose a lower risk. If you have bad credit, the surety company will consider you to pose a higher risk and might even deny your online application. If your application is approved, the surety company will provide you with a bond form showing your bond.
How to Get a $75,000 Surety Bond With Bad Credit
While it's more difficult to get bonded if you have poor credit, it's not impossible. You might need to go through a bad credit bond program to secure your bond. The bond company might also ask for additional documentation to verify that you have sufficient assets to pay any bond claim that might be filed.
Through a bad credit program, you can expect to pay higher bond premiums to get your surety bond, so you will need to make sure you have enough money to pay the premium up-front when you receive your free quote.
After you are issued your bond, you can work to improve your credit and avoid bond claims. Since your bond will expire, building your credit and business reputation might help you to secure lower rates in the future when you need to renew your bond or purchase a new one.
Most Common $75,000 Surety Bonds
Freight brokers and freight forwarders are required to post $75,000 BMC-84 freight broker bonds to obtain licenses from the Federal Motor Carrier Safety Administration (FMCSA). As an alternative to posting a $75,000 freight broker bond, you could instead choose to deposit $75,000 in a BMC-85 trust. However, most freight brokers opt to post a $75,000 bond and pay the surety bond premium so that they won't have to post the entire cash amount up-front to secure their licenses. Being able to pay a small percentage of the maximum bond amount instead of the entire amount also allows you to avoid tying up money that you could use for your business operations.
Other types of bonds that might be required in the amount of $75,000 include:
- Auto dealer bonds
- Performance bonds
- Fidelity bonds
- NVOCC bonds
Some types of bonds, including auto dealer bonds, motor vehicle dealer bonds, permit bonds, contractor license bonds, notary public bonds, other types of license bonds, and court bonds typically are required in lower surety bond amounts. However, the required bond amount will vary based on your state, license type, and the size of any project on which you want to perform work.
Having to purchase a $75,000 surety bond might sound overwhelming. However, the actual surety bond cost will be determined during the underwriting process and will only be a percentage of the maximum bond amount. Once you get bonded, work to improve your credit, adhere to your bond requirements, and build a good relationship with your customers and bond company to secure lower rates in the future.