Bonds takes on different forms, but on the basest level, they mean the same thing. Bonds represent the premise that someone puts money up as a surety that certain obligations would be fulfilled. The obligations and the conditions attached to the bond determine the bond’s name, and there’s a bunch of them; Surety bonds, Bail bonds, Construction bonds, etc.
Surety bonds are legally binding three-party contracts that guarantee one party’s performance of an obligation to another party. The special terms used to refer to each of the parties involved in this contract are; Principal, Obligee, and Surety.
The Principal (an individual or business) is the party required to obtain the bond, the Obligee (the government agency) is the party that requires the principal to get a surety bond. The Surety (a specialized surety company or an insurance company) is the neutral third party that provides the contract’s financial backbone.
Businesses require surety bonds to operate. The surety bond guarantees your company’s obligations to its customers and the government. Let’s look at how you would go about obtaining one.
The process of acquiring a surety bond works very similarly in most of the states. In Texas, the key steps include;
- Knowing which type of bond your business needs.
- Finding a third-party surety company or a broker that offers that kind of bond and submitting the application for a surety bond quote. The surety may require some basic personal and financial history.
- An underwriting process to determine your perceived risk level will be performed by the surety (similar to what insurance companies do).
- Finally, the surety will forward a quote to you for a premium. You get the option to either pay the premium or shop for another quote if that one does not favor you.
A lot of people have discovered that the simplest way to get affordable surety bonds is to work with services that have access to a proper amount of sureties database and have experience bonding people with bad credit, as the Austin bail bond services, for example.
How much does it cost though? Let’s find out.
How much does a Surety Bond cost?
The cost of a surety bond is a percentage of the amount of the bond itself. This percentage varies by industry. Most surety bonds usually fall between 0.5% to 15% of the bond amount; that is a lot of variation and change. Why then?
A bonding company works out its quotes by going through a series of calculations. The base premium of the surety bond is then determined the estimated result of their findings. This is the amount you’ll be required to pay each year.
Apart from the industry of your business, there are numerous factors that influence the price of a surety bond.
Factors that Affect Surety Bond Cost.
Underwriters consider a number of things when they are determining the premium for surety bonds. These factors are;
- Profession/Industry Risk
Your profession and industry hugely determine how your bond rates would end up. A high-risk business that offers high-risk services would typically pay a higher percentage of the bond amount as premium than a business is comparatively lower risks involved. Examples of high-risk services are mining, construction, etc.
- Bond Type Risk
The cost of a surety bond is also calculated based on the risk the bond poses to the surety. The bond company will analyze the history of loss in the specific kinds of bonds and categories on offer. The kinds of bonds that have a bad track record require higher premiums. If you have chosen a bond with a higher frequency of claims, your rates will reflect higher because of the higher risk.
- Bond Coverage Risk
The bond form and underlying statutes outline your responsibilities as the principal. The more stringent the demands you are obligated to meet, the higher the bond cost.
- Principal Risk
There are always risks attached to your purchasing the bond. The underwriter accesses these risks before the bond cost is determined. This is because you are expected to reimburse the surety company for all losses.
In other words, if you have a bad financial history, it will reflect on your bond premium. The bond companies would examine your business resumes, business financial statements, and credit score to determine just how financially secure and reliable you are.
The cost of your surety bond is very relative and dependent on your particular situations at the time. For easier, faster, and more reliable bond delivery, try the experts at Austin bail bonds. They will assist you to get a better grasp of those factors that affect your surety bond premium to a favorable end for all.