Surety Bond Costs

One of the first questions people ask when they are purchasing something is, "What does is cost?". There is no exception when it comes to surety bond shopping. Unfortunately, bonds are really considered a form of credit and the same rate does not apply to all applicants. It is not that agents do want to give you a better idea of the costs of a bond, it is that they can not without applications being completed. Usually, once a principal is told that bonds are really just a form of credit they respond with "My credit score is...What would the rate be for me?". Most surety bond programs are not written exclusively on personal credit. Therefore, a rate can not be given from the owner's personal credit information alone. Rates are typically underwritten based on, but not limited to: business financial statements for the company, personal financial statements for the owner(s), personal credit history of the owner(s) (not only the score), owner's resumes, etc. For an agent to tell the principal the cost of the bond he/she would have to review a good amount of information. Often, when a principal hears that they can not obtain a quote without completing applications, they want a ballpark figure. While a good agent can get an idea of where an applicant might fall, it is far from being accurate. For instance, a standard market rate for commercial surety bonds are around 1-3% of the amount of the bond. However, there are numerous factors that could put an applicant into a high risk market which is closer to 15% of the amount of the bond. As you can see, agents are hesitant to give a "ballpark figure" when the range is so large. If you are a principal shopping for a bond let me give you this bit of advice. Do not simply complete applications for every agency you can find. Do some research, as the knowledge of agents varies by a frightening amount. Our industry is small, but still has it's fair share of what I call "paper pushers", rather than agents. An agent will review your file and submit it to a couple of bonding companies where he/she feels you will obtain the best rate for your unique situation. A "paper pusher" will simply submit your application to every surety they are appointed with. You might think that these paper pushers are doing you a service by submitting you to more companies, but they are doing quite the opposite. For one, some sureties will pull credit on a principal whether the agent submitted the application with a credit report or not. This could result in a long list of credit inquiries which could drastically effect the owner's personal credit. Some bonding companies will also turn down principals if they receive the application from more than one agent. The sureties that practice this policy feel that the principals look desperate and do not feel comfortable extending them their surety credit. I am not saying you should only submit to one agent, but be sure to communicate with all agents involved that they are not the only agent. Also, be sure to find out what bonding companies each agent will be submitting to. These simple precautions could save you from tremendous headache down the road. When looking for a surety bond, know that you will not be able to get a good idea of the cost until the agent is able to review your applications. Some agents may be willing to give you a ballpark figure, but keep in mind the ballpark is quite large in size and your actual quote can vary greatly. If you decide to use more than one agency, be sure you choose them wisely and keep communication as to what bonding companies the agents are submitting to.