Frequently Asked Questions
We value your questions. Explore the menu below for answers to frequently asked questions about surety bonds and the process for obtaining a surety bond. If you can’t find your answers, feel free to contact us.
There are many different types of surety bonds, but the two general categories are “contract” and “commercial” bonds. A Contract surety bond ensures completion in the event of contractor default. A project owner (called an obligee) seeks a contractor (called a principal) to fulfill a contract. The contractor obtains a surety bond from a surety company. If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred.
Because of our decades of experience and unparalleled approach to getting your bond needs met, in the most expeditious and professional manner.
Yes. Every surety has a different appetite in evaluating risk. Our goal is to match you with the appropriate surety market to best suit your needs.
Most surety companies are subsidiaries or divisions of insurance companies, and both surety bond and traditional insurance policies are risk transfer mechanisms regulated by state insurance departments. However, traditional insurance is designed to compensate the insured against unforeseen adverse events. The policy premium is actuarially determined based on aggregate premiums earned versus expected losses. Surety companies operate on a different business model. Surety is designed to prevent losses. The surety prequalifies the contractor based on financial strength and construction expertise. Since the bond is written with little expectation of loss, the premium is primarily a fee for prequalification services.
A Bonding Company is the insurance company that assumes the risk and responsibility associated with the terms and conditions of a bond. A Bonding Agency is the intermediary between the contractor and the Bonding Company. An Agency is made up of surety professionals that are skilled in evaluating a contractor’s bond needs and matches them with the appropriate bonding company.
It is similar to applying for a bank loan. It gets more complicated if you need a large bond. If you need a bond under $500,000, we might be able to get it approved with minimal information if you have clean personal credit. For larger bond programs, we will need to obtain information from you that will allow the bonding company to understand your character, ability, and financial condition. Once we have all necessary information, we review it and develop a submission package to one of our surety markets within 24 hours. Unless the surety has concerns and/or conditions, a response is usually received shortly thereafter.
Premiums vary from Client to Client depending on the type of bond, quality of financials & surety company. Bid bonds are usually free. There is just one fee for a Performance Bond & Payment Bond issued in conjunction. Depending on circumstances, these rates can average to be less than 1% of the contract price up to about 3% of the contract price. We would be happy to review your situation and let you know roughly what rates you might be able to use, and further, tell you what you could do in the future to obtain lower rates.
Yes. We are able to give you a good idea of potential bond costs over the phone. However, once we have your submission with specific information, we may be able to improve on the rate originally quoted. We have built long term relationships with the surety companies we represent which enable us to achieve the best program in terms of rates and limits for your company.
We have numerous surety markets that specialize in new start up and emerging contractors.
This is a legal document signed by your company and major shareholders personally, indemnifying the surety against loss they may incur because of bonds they wrote for your company. Generally, if a surety incurs costs on your behalf, they will expect to be reimbursed by you. The terms and conditions of the indemnity agreement are important for you to understand. Be sure to read the indemnity agreement. If you have questions, we can probably give you insight on when certain clauses are usually invoked and how that might affect you.
To name a few traits, they all have differing appetites, strengths/weaknesses, desired classes of business, underwriter’s appetite (hungry/aggressive or complacent). Additionally, sureties must meet certain requirements of an owner/obligee. These usually come in the form of minimum A.M. Best Ratings and/or minimum underwriting limitations listed in the U.S. Treasury Department’s Listing of Approved Sureties (Department Circular 570). Alter Surety Group is proud to represent over 35 of the major sureties which gives us an advantage to be sure to place your company, whether large or small, with the one that best fits your needs.
While a surety guarantees the performance of the principal to the obligee, the principal remains liable for its original obligation. If the surety must perform its duty to the obligee regarding the principal’s contract, the principal is liable to reimburse the surety for that performance. Because many contracting firms do not have the capital to assure this repayment, most surety companies require a general indemnity agreement to be signed not only by the firm, but by individuals willing to support the firm. This might be the owner(s) of the firm, the spouse of the owner, a parent corporation or merely other individuals willing to put themselves on the line due to their belief in the firm.
A surety bond is a financial guarantee. In most cases, once you’re married your financial obligations become your spouse’s financial obligations and vice versa. Having your husband or wife indemnify your surety bond is how the underwriter ensures state laws regarding financial accountability are being followed when issuing your bond. Spouses have joint assets, which may have to be sought after in the event of a claim. If the surety does not have the spouses guarantee, they would not have access to any assets jointly held.