Surety bonds are a great failsafe for your business, but choosing the right surety bond at the right rates isn’t always a sure thing. Depending on the type of contract, your business has a number of surety bond options to choose from, so it’s important to make the most educated decision possible.
Surety bonds create a safety triangle for your business by inviting a third party into the business contract. This triangle protects your business from unfulfilled obligations and contracts by guaranteeing the obligation is performed. With that said, a huge advantage for your business with surety bonds is contractor prequalification.
Surety bond companies require that any party your business signs a contract with is prequalified to do the work. This gives your business the financial peace of mind that any obligations mentioned in the contract are completely fulfilled. In the event contractual agreements aren’t met, your business receives the benefit of the bond.
Other Financial Benefits
With a surety bond in place, your business always receives the financial protection of the bond and the risk falls solely on the other party.
As the following article shows, in addition, when it comes to “Surety Bonds: The Process, The People, and The Price”, the premiums you pay are applied to the financial backing of the surety company.
This means your business is paying for a protection guarantee, not just a contract middleman.
Does Your Business Need a Surety Bond?
Well, that depends on a few factors. First of all, whether or not your business needs a surety bond with an outside contractor largely depends on the value of the contract. For instance, a construction contract with a value of $150,000 or more does require a surety bond.
Although your business may not have a contract valued at that amount, there are other types of common contracts that require surety bonds. Small service contracts and certain supply contracts require ongoing surety bonds for example.
If you’re unsure whether your business needs a surety bond, you can contact the Small Business Administration or your local surety bond company to find out.
How to Save Money on Surety Bonds
Just like any other service that benefits your business, there are costs involved with hiring a surety bond company. The costs and premiums are usually minimal depending on the size of the contract, but there are still ways to save money during the surety bond process.
Among the ways to do this:
- Pairing with Pre-qualified Parties – Pairing with pre-qualified contractors saves the surety bond company time, which saves your business money.
- Improving Your Credit Score – Surety bond rates are based on your business’s credit score among other factors. Improving your business’s credit score makes you less of a risk in the eyes of the surety bond company, this will result in better premiums.
- Extended Bonds – In some cases, buying your surety bond for longer periods of time results in lower rates because the cost of the bond will stay the same until it’s time to renew.
If your business is about to enter into a contract with an outside party, then it’s important to consider the surety bond pointers above.
About the Author: Adam Groff is a freelance writer and creator of content. He writes on a variety of topics including risk management and small business.