Fidelity Bonds


Fidelity Bonds – known as dishonesty bond or business services bond – protects the business owner from theft of customer’s property by employees. Also it offers assurances to a business for losses caused by the dishonest acts of its employees.

Since each surety company has it’s own underwriting guidelines for this particular commercial bond, it would be impossible to list the requirement(s) that each surety company will require for this bond.

It is highly recommended that the surety broker or the principal familiarize themselves with the surety and what that surety needs for this type of bond.

Below is a list of all the possible information that a surety may ask for in the process of evaluating the bond:

  • A commercial bond application: This 1-2 page application will provide the surety with general information on the principal. It will also help the surety to determine: the bond amount, who is requiring the bond of the principal (obligee), principal’s contact information, owner(s) contact and personal information, etc. A surety can decline an applicant if they find that any of the information is inaccurate. At times, a surety will not want to write bonds when certain obligees are involved.
  • Business Financial Statements: Balance sheets, income statements, statement of cash flows and aging schedule for account receivables and account payables are classified into 4 categories, in order of preference by the surety. Since most commercial bonds are under $100,000 in penal sum, most sureties will accept any form of business financial statements for the commercial bond submission.
    • Audited Statementsverifies relevant items in the financial statement with internal and external investigations of their accuracy. The accountant certifies that the financial statement is presented in accordance with accepted accounting principles.
    • Reviewed Statementsconsists of a thorough review of the contractor’s financial records and the application of certain analytical procedures to the financial data. Although narrower in scope than a full audit, the review does provide some limited assurance about the financial statements.
    • Compilation Statementsprovides little or no assurance of the credibility of the figures presented and would typically be accepted only for interim statements.
    • In-house Statementsis internally prepared with very little weight or credibility when attached to the information on the statements.
  • Resume on the owner(s): Provides a clear and concise history of the people who either own or will be supervising the business. This let’s the surety know that the key owners/employees has the knowledge and experience to run the business and undertake that scope of work that is in accordance with the bond.
  • Personal financial statements of the owner(s): Similar to business financial statements, personal financial statements can be audited, reviewed, compilation or in-house. Most sureties will accept in-house statements as long as the key assets – cash, stocks and short-term assets – can be confirmed. In cases, where the majority of the principal’s net worth is in easily to verify assets, such as cash and short term securities, it is also recommend that verification of these assets are also submitted.
  • Current Bank Statements: As previously discussed, some bonds will require that the principal have a certain net worth. The easiest way to verify the principal’s assets is to provide current bank statements and brokerage statements that can verify some of the assets that were declared in the personal financial statement.
  • A copy of the license or permit: Certain commercial bonds will also require that the principal has already obtained the necessary permit or license before the bond can be acquired.
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