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Having the appropriate surety bond in place is a crucial part of running a business for many professionals. Several differenttypes of bonds exist, depending on the industry in which the business operates or the specifics of a certain job or project. Because there are so many different forms of surety bonds out there, it can be difficult to know how much of a cost a bond will represent for the business.

Surety Bonds Cost

Understandingsurety bond costs requires some knowledge about the categories of bonds available, how surety bonds work, and how the type of bond impacts its pricing. Here you can discover the basics of surety bonds and how they work to protect businesses and their customers, as well as the cost of surety bonds for licensing requirements and for specific contracts.

The Basics of Surety Bonds

Here you can discover the basics of surety bonds and how they work to protect businesses and their customers, as well as the cost of surety bonds for licensing requirements and for specific contracts.

In several industries where business professionals have interactions directly with consumers, a surety bond may be required as part of the process of getting a specific business license or completing a specific customer project or job. This piece of protection works to safeguard the customer or the project owner from financial losses that take place due to bad business practices or an incomplete job. Unlike insurance, a surety bond pays successful claims to the customer o project owner impacted. The surety bond holder – the business owner or professional – then repays the claim amount to thesurety agency.

Because of this unique relationship between the bond holder, the customer or project owner, and the surety agency, business bonds are priced much differently than insurance coverage. While the cost of a surety bond is similar between license bonds and performance bonds, there are subtle differences to note.

Pricing for License Bonds

If you work in a business that requires you to have a license before starting work with customers, you likely also need a license surety bond to stay compliant with state or federal regulations. A license bond is often one of the first expenses a business owner faces, making it necessary to understand howrates are charged. Knowing the factors that drive surety bond rates for license bonds is the first step. These factors include the following:

Personal credit score – a surety license bond is a form of extended credit provided to you as the business owner, and so yourpersonal credit score impacts the price. A high credit score often leads to a lower surety bond cost, while the opposite is also true.

Business finances – surety agencies want to feel confident that you are a professional when it comes to managing your business, as this may represent a lower risk. Having financial documents including a balance sheet, income statement, and cash flow statement will help in assuring the surety company you are a responsible business owner.

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Business assets – pricing on surety bonds also connects to the liquidity of your business. Having ready-to-use assets, like cash, available with minimal or well-managed debts is key to keeping the cost of your surety bond down.

The Cost of Contract Bonds

Contract bonds work differently than license bonds. They are often put in place in addition to a license bond, and they are required as part of certain construction projects, especially those that are valued at a high dollar amount. A contract bond has similar factors that influence its price, including your personal credit score, your business financial documents, and your business liquidity. However, additional factors also play a role in surety bond costs, including:

Industry experience – the price of your surety bond for a specific contract will be lower if you have a strong track record of completing projects in your industry. Having a list of successful jobs that are completed in-line with the agreed upon contractor shows the surety agency you are likely to do the same for your next project.

Contractor size – large commercial projects in construction will require a higher bond amount, and therefore, the cost of the bond will be higher. This is because bond rates arecalculated as a percentage of the total bond required, ranging from 1 to 15%. Bigger bonds may require a lower percentage as the payment, but the total bond amount increases the cost to you as the business owner.

With many factors influencing the price of a surety bond, whether for licensing or a specific contract, it can be difficult to know how much you will pay. However, understanding that strong personal credit and organized business financials are key to affordable bond pricing is beneficial. Also, knowing that surety agencies want to see business liquidity and industry experience also prepares you for your next bond application. Taking steps to improve or organize these factors will keep the cost of your surety bond lower.

Eric Weisbrot - 200

Eric Weisbrot

Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.