If you’re here, you’re probably new to surety bonds. So, keep reading for a quick overview of what they are, how they work, and how much they cost.
For a more in-depth look at surety bonds, see our surety bonds page. It provides a detailed overview of the many different types of surety bonds.
What Is A Surety Bond?
To understand what a surety bond is good for, we first need to know what it is. 💡
A surety bond is a contract between three parties—the Surety, the Principal, and the Obligee.
Its purpose is to ensure that the Principal (typically a business) fulfills its contractual obligations to the Obligee (the party requiring the bond).
What Are Surety Bonds Good For?
Surety bonds are good for many things, but their main purpose is to protect businesses.
Here is an example:
Let’s say Janitor Company A is the top candidate for a janitorial contract.
However, Property Owner B wants the company to get a surety bond in case Janitor Company A’s employees steal something while working.
Janitor Company A complies with the request and wins the contract. Unfortunately, one of Janitor Company A’s employees ends up stealing $1,000 from Property Owner B. ❌
In this case, Property Owner B can file a claim against Janitor Company A’s surety bond to recover the $1,000. The surety company that issued the bond will investigate the claim and, if it’s valid, will compensate Property Owner B for the loss. ✅
Surety Bonds Make Your Business More Trustworthy
As you can see from the example, Janitor Company A was willing to shoulder the risk and back up its promises with a financial guarantee.
This makes a business much more attractive to potential clients.
If you own a small to medium business, a surety bond can help you secure contracts by showing you have skin in the game.
Surety Bond Costs and Premiums
So, you may be wondering, how much will it cost to get a surety bond?
Answer: Surety bond premiums range from 1% to 15% of the total bond amount, so whatever your bond amount is, times it by that range of percentages.
How Much For A $100,000 Surety Bond?
Since all construction projects amounting to more than $100,000 require a surety bond, let’s use the 1% to 15% range to estimate what you would pay.
- Project cost: $100,000
- Low-end estimate (1%): $1,000
- High-end estimate (15%): $15,000
- Surety bond cost range: $1,000 to $15,000
Granted, this is a fairly wide range, so you’ll need to speak with your preferred insurer about where they land.
Finding A Lower Surety Bond Premium
You can secure a low surety bond premium in some cases. However, this depends on the underwriter’s evaluation.
Two big factors that impact your premium are (1) your personal credit history and (2) your company’s financials.
Can’t Pay The Full Surety Bond Premium? Are There Other Options?
If you can’t pay the full amount, you’ll likely need to find a financing company. Some surety bond companies offer financing solutions.
But there are some things you want to watch out for, including:
- Interest Rates
- Fees
- Repayment Terms
- Credit Check (Financing may require a credit check, which could impact your credit score.)
- Hidden Costs
- Company Reputation
Speak With A Surety Bond Company
Surety bond companies usually have similar requirements. However, some offer surety bonds to business owners with lower credit scores.
If you are looking for surety bonds in Nevada, All n One Bonding & Insurance can help you.
We treat our customers fairly. Contact us for more information.