All posts by M L

Surety Bond Vs Letter Of Credit – What’s The Difference?

There are many financial products that help a construction company to grow, both in the private and public sector.  Two of these products, a surety bond and a line of credit, can be helpful in becoming more successful.  Knowing the difference between the two can help your business to grow. Surety Bonds vs Lines of Credit To start, both surety bonds and lines of credit (LOCs) provide financial protection. Yet surety bonds tend to take that protection a step further.  By definition, a surety bond is a three party agreement between the project owner, the surety bond producer and the contractor.  Two of the most utilized surety bonds in the industry are performance bonds and payment bonds.  A performance bond ensures that the contractor upholds the contractual obligations specified in the contract.  A payment bond guarantees that the contractor pays all associated with the project.  This can be anyone from laborers to subcontractors, material suppliers and other employees as specified in the contract.  A LOC is a cash guarantee.  It allows the owner to call upon it on demand.  It works as a payment to the owner, but is an interest loan for the contractor. A surety bond is based...

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By M L

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Is there a Difference Between Surety Bonds and Insurances?

Have you been told that a surety bond is the same as insurance?  Or that insurance is better than a surety bond in the field of construction?  There are contractors, who feel, that construction bonds are not necessary in order for their business to succeed.  Unfortunately, these are often the same contractors who do not see as much business growth as bonded contractors.  All public construction projects required surety bonds.  Since the public construction sector is a reliable industry it is an industry worth working in.  In addition, in recent years, many private sector construction jobs have also began to require surety bonds. What are the main characteristics of insurances and surety bonds? First, we would like to debunk the myth that bonds and insurances are the same thing.  Many people assume, incorrectly, that the term “bonded” and “insured” are interchangeable.  In the case of the contractor, an insurance policy usually refers to liability insurance or workers’ compensation.  They do not protect the project owner, but rather the workers.  For many clients, hearing that a contractor is also bonded, gives the project owner confidence that they will be protected, in the case that the contract is not satisfactorily completed....

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By M L

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Why your Relationship with your Surety Bond Producer Matters

Your relationship with a surety bond producer is like any relationship.  It needs to be a good match for what you are looking for.  A healthy relationship with your surety bond producer can be beneficial.  It can help lower your stresses at work and help your business grow.  But, what should you be looking for in a surety bond producer?  Unfortunately, there are no “match making” surety bond websites.  So we’ve outlined some things to keep in mind when choosing who will be your perfect surety bond producer match. Qualities to Look For First, if you are under the impression that surety bonds are not mandatory, you may actually be losing out on a lot of business.  Research has shown that the public construction industry is always growing and has consistent work.  A huge difference between public and private construction work is that public construction work requires a surety bond.   This is not always the case in the private sector. Having a surety bond producer, who looks out for you and guides you is tantamount to success for any construction company.  A surety bond producer can also help you to better understand certain terms.  Think of them like...

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By M L

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Surety Bond Producer as Your Advocate

The worst outcome has happened, you have had a claim filed against your business.  What to do now?  As this can be a stressful time, having someone in your corner can help lift a huge weight off your shoulders.  This is where a surety bond producer as your advocate can be of enormous help. A basic claim procedure begins when someone associated with the job files a claim against you.  They will look over the evidence. If the claim has no backing to it, a surety bond producers acts as an advocate.    The best way to help your surety bond producer is to make sure to document everything.  This includes that you pay for labor or materials on time to when you complete certain aspects of the project.  If you have done your end of the job, then the surety bond producer will help to prove that the claim is false. There are many attributes to look for when working with a surety bond producer, and below we have highlighted some things to consider.  Therefore, if someone does file a claim  against your company, you can be certain that your surety bond producer will protect you and that you...

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By M L

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ClaimsSurety Bonds

How Claims Hurt

We’ve emphasized, in previous blogs, that a contractor has control in avoiding claims.  The best way to avoid having a claim filed is to make sure that the contractor fulfills and documents all contractual obligations.  But, if the contractor is not able to fulfill the contractual obligations, a claim may be filed.  This will hurt the  reputation of the contractor in many ways. The Financial Burden of a Claim First of all, the financial burden will be evident once the contractor is found to have defaulted on the contract.  The contractor may have to pay the full amount.  They may also have to pay any legal fees associated with the claim.  A surety bond is not meant to protect the contractor. Instead it ensure the project owner that they will not lose out on money if the contractor defaults on the contract.  If the surety bond producer deems that the contractor has defaulted on the contract, they will pay the project owner.  They will then seek reimbursement from the contractor. The Risk of Ignoring Claims But what if the contractor decides not to pay the claim? They may feel they weren’t in the wrong or may not have the financial...

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By M L

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Business Service Bond – Apply Now

The U.S. service sector is a growing industry and has expanded over the last decade.  A service industry includes any form of outsourcing, such as human resources, IT, leadership development, home cleaning services, in home personal care, etc.  If a company outsources, it is important that they protect themselves from any form of negligence or fraud. Benefits of Bonding So what are the benefits of requiring a bond for a business that you work with?  The first is to protect yourself from liability due to an employee committing fraud when dealing with a customer.  Another reason, is that you give your customers added assurance by letting them know that your employees or the businesses that you work with are bonded, which could potentially bring in more business.  If a business is taking the extra steps to protect their customers, it helps to build a positive reputation.  In comparison to a standard fidelity bond, a business services bond protects for on-premises incidences. Summary: The service sector is growing exponentially.  Therefore, many businesses are  hiring additional outside employees to continue providing their business’ services to their customers. A business services bond provides protection against any sort of fraudulent or negligent work by...

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By M L

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Four Myths about Surety Bonds

In the contracting world, there are some myths about surety bonds. Do you really need one or is it just an added protection, for a costly price? This leaves the contractor with a decision to make: avoid the project or work without a surety bond. Below we dispel some of these myths: The first misconception is that surety bonds are expensive! This tends to alienate many small businesses from bidding on projects that require surety bonds. Which in essence, loses them money. Usually, (depending on the credit score of the applicant), a bond premium costs between 1% and 3% of the contract sum. Another misconception is that surety bonds are not needed by large construction companies. There is also the misconception that there is a bias towards smaller companies. This is because, many think, that they are more of a risk or liability to award projects to. This myth is based on the idea that large companies won’t need to buy surety bonds because they can afford to have safeguards in place. Have you heard, from colleagues and friends, that all surety companies are equal? This is another misconception. A surety company draws its strengths from its years of...

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What kinds of surety bonds are there?

Surety bonds are a financial guarantee between three parties in a legally binding contract. These three parties are the obligee, the principal, and the surety. In essence, the surety guarantees payment of a specified maximum sum or compensation in case the obligee incurs any damages or loss caused by the actions (or a failure to perform) of the principal. The Principal The principal is the person or company who has to purchase a bond. The surety then provides a financial guarantee to the obligee that the principal is financially sound to undertake the project. The Obligee The obligee is the party that requires the principal to purchase a bond. The Surety The surety is a company that guarantees the bond. Therefore, the surety also provides the financial assurance of the principal. If the principal does not follow the terms and conditions of a bond, the obligee can make a claim and collect damages. If the claims are valid, the surety will reimburse the obligee and then seek reimbursement from the principal. Surety bonds are required by those in business  who provide services to consumers and government offices.  Although surety bonds all have the same purpose, there are different types...

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By M L

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The Benefits of Insurance Agent and Surety Bond Producer Relationships

When it comes to surety bonds, insurance agents can encounter several hurdles.  These can range from problems obtaining bonds, slow service or uncompetitive rates.  In order to remedy this, insurance agents have two options.  They can outsource their bonding business to another insurance company, with a sub-specialty in surety bonds, or develop a relationship with a surety bond producer. Although some insurance agencies may have a surety bond department, they may only be sold as a sub-specialty. When working with another insurance company, the insurance business may be lost to the outside insurance company. But this is a risk that is undertaken in order to fulfill the surety bond needs of the client. The benefits of working with a surety bond producer are numerous.  Some are that insurance agents will be able to offer competitive surety bonds to their clients.  They will also have access to underwriters, bond approval and issuance.  Additional benefits include that the insurance agents are able to provide their clients with a link to a superior bonding experience. This is because they are able to use their relationships with a bonding professionals who has a vast knowledge of the surety markets, relationships in the industry, seasoned experience and access to Internet and electronic bonding tools. Even...

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By M L

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