Surety bonds are used frequently as a way of providing a guarantee that one institution will perform in accordance with the demands of another institution and if this performance is not delivered in full compliance with the contract, a third institution guarantees that the job will be completed. A surety bond is usually used in the construction industry. A surety bond has to be paid for by the principal and the company wants to get the best deal, either a lower price or a higher bond which will allow the company to bid on higher cost projects. Where does a company go to buy this bond?
In most cases the surety bond is arranged through an insurance company. As the principal you will want to investigate the surety company just as they will investigate you. In most cases the company who needs the bond will deal with their general insurance company as they are well aware of the company and the insurance company will have most of the information they need to post bond already on file. The amount of information that the surety company expects can be very detailed and to shorten the cycle as much as possible working with a local agent is far superior to working with an out-of-state company that does not know you.
The surety company will want specifics of the job and of the company. As a contractor you can be expected to supply details of the company, the number of employees you have and how many sub contractors will be involved during the construction phase. The surety company will want to review a copy of the contract and specifications. This and more is the type of information the company uses to form a better picture of the risks associated with the project.
Getting a picture of the project is one thing; the surety company will demand a better picture of the financial health of the principal as well as the credit standing. You can expect to be asked for audited financial statements for at least three years. The surety company may also ask for specific information directly from your bank, they will want to know the details of outstanding obligations and the lines of credit available.
Buying a surety bond is not a straight forward process, be prepared to provide detailed information about yourself, the company and the project.
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