Do You Need a Surety Bond to Obtain a Liquor License?

Jul 24 Posted on

The short answer is: it depends. Whether or not you will need a surety bond in order to obtain a liquor license depends on the state in which you will operate your business. Not all states require an alcohol surety bond as a condition for obtaining a liquor license. Learn more below, and contact Single Source Insurance today to discuss your bonding needs with an experienced agent.

What is a Liquor License Bond?

A liquor license bond (aka alcohol bond) is a type of license and permit bond required in many states as part of the process for becoming licensed to sell liquor for consumption on or off the seller’s premises. Some municipalities also issue local licenses and require a surety bond from licensees. Other types of alcohol surety bonds may be required in order to engage in other alcohol-related businesses, such as brewing, distilling, transporting, warehousing, or wholesaling alcoholic beverages, but our focus in this article is solely on surety bonds needed by those applying for or renewing a liquor license.

The purpose of a liquor license bond is to ensure a licensee�s compliance with all applicable state laws governing the sale of alcohol. It guarantees the payment of taxes due on alcohol sales and any fines incurred by violating the law�for example fines for selling alcohol to a minor.

Who Needs It?

Anyone applying for or renewing a liquor license in a state and/or municipality that imposes a requirement for a liquor license bond must purchase one.

How Does It Work?

The bond brings three parties together in a legally binding agreement:

  • The government agency requiring the bond (the obligee)
  • The liquor license applicant or licensee (the principal)
  • The company underwriting and issuing the liquor license bond(the surety)

The obligee sets the required bond amount, also known as the penal amount of the bond. Though this amount varies from state to state, it�s usually no higher than $10,000.

If the principal fails to remit the proper tax payments to the obligee as required, the obligee may file a claim against the bond in the amount of the unpaid taxes plus any fines.

The surety will determine the validity of a claim and try to negotiate a settlement. When no settlement is forthcoming, the surety will typically pay the claim on behalf of the principal. However, the fact that the surety pays a claim in advance does not let the principal off the hook. Nearly all surety bonds indemnify the surety and obligate the principal to reimburse the surety for claims already paid.

What Does It Cost?

The surety establishes the specific premium rate for each applicant based on the principal�s personal credit score and other factors pertaining to his or her creditworthiness, financial strength, and the likelihood of claims. Applicants with good credit may pay as little as 1% of the required bond amount. Those with poorer credit will likely pay more.

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Let the experts at Single Source Insurance help you determine the bonds you need for your alcohol-related business, or request a quote today.

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BMC-84 vs. BMC-85 Surety Bonds

Jul 24 Posted on

BMC-84 surety bonds and BMC-85 lines of credit have some things in common, but it�s important to understand their differences. Learn more about these bonds below, and contact Single Source Insurance today to speak with an agent regarding your bonding needs or to apply for a bond.

What Are They?

The U.S. government, specifically the Federal Motor Carrier Safety Administration, or FMCSA (an agency of the Department of Transportation), gives freight brokers and freight forwarders two options for meeting its $75,000 requirement for funds to cover possible claims made against them by shippers or carriers. Meeting this requirement is a condition for obtaining and keeping a license to operate legally within the United States. The two options are:

  • A surety bond (known as BMC-84) in the amount of $75,000.
  • A trust (BMC-85) secured by $75,000 in cash, an irrevocable letter or credit or line of credit, or a combination of cash and LOC

The names �BMC-84� and �BMC-85� come from the names of the forms that must be filed with the FMCSA.

BMC-84 and BMC-85 solutions do not protect a freight broker or freight forwarder from liability. There is liability insurance for that purpose. Rather, BMC-84 and BMC-85 instruments protect truckers and shippers against nonpayment by freight brokers or forwarders that owe them money.

Who Needs Them?

Since BMC-84 or BMC-85 coverage for claims is a federal licensing requirement, purchasing it is mandatory for freight brokers and forwarders doing business in the United States. Because BMC-85�s require a large amount of cash, smaller freight brokers and carriers typically opt for the BMC-84 surety bond instead.

How Do They Work?

A BMC-84 bond works like other surety bonds that are categorized as license and permit bonds. There are three parties involved in the surety bond agreement:

  • The obligee that requires the purchase of a bond (FMCSA)
  • The principal required to purchase a bond (the freight broker or forwarder)
  • The company that issues the bond (the surety)

The bond obligates the principal to abide by all applicable laws and industry standards, including payment of fees owed to truckers and shippers. Failure to comply with the terms of a BMC-84 bond related to payment of transportation fees can result in a trucker or shipper filing a claim against the bond.

The surety will investigate each claim and make sure it is valid and then try to negotiate a settlement with the claimant. If no settlement is reach, the surety will pay the claim on behalf of the principal, but the principal must subsequently reimburse the surety. An indemnification clause in the surety bond contract makes the principal solely responsible for paying valid claims.

The main difference for freight brokers and forwarders who establish a BMC-85 trust instead of purchasing a BMC-84 surety bond is that the cash or LOC needed to pay claims is already held in the trust and is used for direct claims payments by the trust company to truckers and shippers with valid nonpayment claims.

What Do They Cost?

The annual premium payment for a BMC-84 bond is a small percentage of the required $75,000 bond amount. The surety sets that percentage based largely on the applicant�s credit score. For people with acceptable credit, the premium rate will typically be from 1% to 5%. People with serious credit challenges can still get a bond but may pay a higher premium rate.

If you choose the BMC-85 option, in addition to funding the required trust with $75,000 up front, you�ll also pay an annual administrative fee to the bank or trust company. This fee is generally in the neighborhood of $1,500 per year.

Get Bonded Today

If you�ve decided that a BMC-84 bond is right for you, apply online today with Single Source Insurance. Our experienced agents can also help to discuss your needs so you can decide between a BMC-84 and BMC-85.

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Surety Bond FAQ: Top Questions Answered

Jul 15 Posted on

Surety bonds can be complex. It�s understandable that we get many questions about bonding requirements and the underwriting process. To help answer some of the most common questions, we�ve put together a comprehensive FAQ. If you would like to request a quote or need any help with answering your questions, contact an Single Source Insurance agent today!

What’s The Purpose of a Surety Bond?

A surety bond serves as a guarantee that the party requiring the bond (the obligee) will not suffer a financial loss as the result of the actions of the party purchasing the bond (the principal). The bond is a legally binding contract that spells out the specific things the principal must and must not do to avoid claims being filed against the bond.

How Does a Surety Bond Work?

A surety bond is a legally binding contract among three parties: the obligee that requires the bond, the principal that purchases the bond, and the surety that underwrites and issues the bond. The bond contract specifies the terms and conditions the principal must abide by so as not to incur claims against the bond. It also specifies the maximum amount that will be paid out on any claim.

Some people aren�t clear on the difference between insurance and surety bonds. Both provide protection against the risk of financial loss. However, when you buy insurance, you are the one protected. When you buy a surety bond, it�s the obligee (the party requiring the bond) that is protected against loss. The individual purchasing the bond, the principal, is ultimately responsible for paying out on valid claims.

Can Anyone Get a Surety Bond?

Surety bonds are required for a wide variety of purposes, but in most cases, a surety company�s decision to issue a bond is based entirely on the applicant�s personal credit score and financial resources. Even people with bad credit can usually get bonded, though they will likely pay a higher premium rate than someone with good credit.

Note that some bonds guarantee that the principal will uphold certain professional or industry standards or abide by certain regulations. In such instances, the surety company may also take into consideration the applicant�s industry experience and past performance.

Do I Need a Surety Bond?

People typically purchase a surety bond because they are required to do so as a condition of obtaining or doing something they want or need. Here are common examples of when a bond is required:

The obligee requiring you to purchase a surety bond will let you know what type of bond is required.

What Happens When a Claim Is Filed?

Any violation of a surety bond contract by the principal can trigger a claim, which the surety will investigate. If a claim is found to be valid, the surety will attempt to negotiate a settlement, but if an agreement cannot be reached, the surety typically pays the claim. However, this payment is essentially an advance to the principal, who is legally responsible for paying claims. The principal must subsequently reimburse the surety in full.

Do Surety Bonds Expire?

Every surety bond expires eventually if it is not renewed. The question is, how long does the obligee require a surety bond to be in place? Here are some examples:

  • A contractor payment bond for a project that will be completed within a year might have a bond term of one year.
  • A car dealer�s license bond in a state where the dealer’s license must be renewed every two years might have a bond term of two years, with an expiration date that coincides with the license expiration date.
  • Other bonds. Some bonds may need to be in place for a significant period of time, such as a court bond for someone serving as a guardian for a minor or custodian for an incompetent adult.

At the end of the bond term, a bond must be renewed or extended. Some bonds are not renewable, and in such cases, a replacement bond must be purchased.

Are Surety Bonds Refundable?

Under certain circumstances, some surety bonds may be refundable. If a refund is permitted, it�s generally shortly after the bond was purchased.

There are a number of reasons why a person might request a refund on a surety bond. For example, someone purchases a contractor�s license bond after taking the examination required as part of the licensing process. A few days later, they learn that they failed the exam and decide to spend the next year preparing to retake the exam. Since they can�t obtain a license yet, they want a refund on the bond, which the surety company may or may not grant.

There are no hard and fast rules about refunds on bonds, and surety companies can exercise their own discretion in such matters. Generally at the time a bond is purchased, it is considered to be �fully earned� for the first year of the bond term, so mid-year refunds are rare. However, if you purchase a bond with a multiple year term and pay the premium up front for all years, then find before the end of the first year that you don�t need it any longer, you may be able to get a refund for the premiums paid in advance for year two and beyond. Speak with an agent for assistance.

How Often Do You Pay For A Surety Bond?

Unlike insurance premiums, which typically can be paid monthly or quarterly, surety bond premiums are generally paid in full at the time of purchase. For bonds with a term of only one year, that�s usually not a financial hardship for the purchaser. However, premiums for guardianship bonds and custodian bonds required of people caring for minors must be paid in advance for the number of years remaining until the minor reaches age 18. So a guardian of a four-year old child will have to pay the premium for 14 years of coverage at the time a guardianship bond is purchased.

Surety bond companies may agree to finance surety bonds with annual premiums above a certain amount, typically $1,000 or $1,500. The purchaser must meet certain financial criteria, and the bond must be cancellable, so that the surety can cancel it if the purchaser fails to make payments as called for in the financing agreement.

How Do I Get A Surety Bond?

The process of applying for a surety bond is rather simple, and most companies that sell surety bonds offer the ability to apply for a bond online. The hard part is choosing the right surety company.

Get a surety bond online from Single Source Insurance, and get on with business. We are licensed across the country and offer a comprehensive selection of the best performance bonds and surety bonds at the best prices to keep you in compliance with all of your industry regulations.

How Long Does It Take To Get Bonded?

When you apply for a surety bond online, you can often get approval immediately, as long as you have provided all of the information the surety needs and you meet all of the approval criteria. The time it takes for your bond to be issued once your application has been approved will depend on how quickly you pay the bond premium and return a signed copy of the bond agreement. Once those tasks have been accomplished, you should have the bond certificate within a day or two.

What’s The Difference Between a License Bond and a Contract Bond?

There are different bonds for different purposes. License bonds and contract bonds serve two very different purposes.

Purchasing a license bond is a prerequisite for obtaining a license to do business in a given state. License bonds are required for a number of professions and businesses, and the list varies from state to state. Two common example are auto dealer license bonds and contractor bonds. A license bond guarantees that the bonded individual (the principal) will conduct business in accordance with all applicable laws, regulations, and industry standards. It protects the state and consumers against financial loss stemming from the principal’s unlawful or unethical actions.

View License & Permit Bonds

A contract bond guarantees that the bonded individual, often a general construction contractor, completes a project in accordance with all contract terms and specifications. It protects the project owner, often the state agency sponsoring a public works construction project, against financial loss resulting from the principal’s violation of any contract terms and conditions, including defaulting on the contract and failing to complete the project.

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What Is A Fidelity Bond?

A fidelity bond protects business owners from financial loss resulting from the dishonest or fraudulent acts of employees. The two main types of fidelity bonds are business services bonds and employee dishonesty bonds.

Businesses that send employees out to do work at a client�s location, such as house painters, cleaning services, and landscapers often voluntarily purchase a business services bond. A business services bond provides protection against financial losses due to the theft of or damage to the client’s property by an employee while on the client’s premises. Buying this type of bond can give new clients the confidence to hire you and gives you an advantage over non-bonded competitors.

An employee dishonesty bond protects a business owner against losses due to theft, fraud, embezzlement and similar dishonest acts committed by one or more employees. It can be a blanket bond that covers all employees, or it can designate only specific named individuals.

Can I Get a Bond If I Have Bad Credit?

Yes, you can. Nearly all surety bond companies offer bad credit programs. You may pay a higher rate than you would if you had good credit, but you should be able to get the bond you need.

Apply for a bad credit bond.

What Is Personal Indemnity?

Virtually all surety bond contracts include a personal indemnity clause. Signing it makes you legally liable to reimburse the surety company for any claims or other costs they pay on your behalf. This indemnity clause is also commonly known as a �hold harmless� agreement.

Do Court Bonds Require Collateral?

Due to the large sums of money often involved in situations requiring court bonds, collateral is often required in order to purchase a bond, especially if the person applying for the bond has bad credit. The collateral must be equal to 100% of the required bond amount.

Collateral can be in the form of cash or an irrevocable letter of credit. Real estate and other assets that cannot easily be liquidated are not accepted by a surety company as collateral. However, a bank might accept such illiquid assets as collateral for an irrevocable letter of credit that would meet the surety company’s collateral requirements.

What Should I Note As My Effective Date?

The effective date of a surety bond is the date that it becomes active. There is no coverage for losses incurred prior to the bond�s effective date. The obligee requiring you to purchase the bond should tell you what the effective date must be. In the case of a license bond, the effective date must be prior to the issue date of the license.

How Do I Know The Bond Amount I Need?

The bond amount is established by the obligee requiring you to purchase the bond. It is also referred to as the penal amount of the bond.

What’s The Difference Between Surety Bonds & Insurance?

Insurance provides financial protection for the person that purchases it. An insurance policy transfers financial risk from the insured to the insurer.

A surety bond protects the obligee that requires its purchase. It transfers financial risk from the obligee to the person purchasing the bond (the principal).

What If I Have Another Question?

At Single Source Insurance, our surety bond experts will gladly address these and any other questions you may have. Contact us today for assistance.

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What Happens When a Claim is Filed against a Surety Bond?

Jul 10 Posted on

The claims process is a crucial part of any bond. It�s important to understand what happens when a claim is filed against a bond so that you can know your responsibilities and what�s expected of each party involved. Here�s what you need to know.

What is a Surety Bond?

A surety bond is a legal contract that brings together three parties in a legally binding agreement. The purpose of a surety bond is to protect one party in the agreement against financial loss resulting from the actions of another party, through a third party�s issuance of a guarantee. These three parties are referred to by the role they play in a surety bond agreement:

  • The obligee is the party that gains protection by requiring the purchase of a surety bond.
  • The principal is the party required to obtain the surety bond for the protection of the obligee.
  • The surety is the company that underwrites and issues the surety bond.

Surety bonds are used in many industries. They�re broadly categorized as:

  • License and permit bonds, which are required as part of the process of licensing or registering a business and guarantee that the principal will conduct business in a lawful and ethical manner.
  • Contract bonds, which guarantee that contracted work will be done in accordance with all contract terms and provisions and provide financial protection for the obligee in the event of contract default or non-performance.
  • Court bonds, which are required by a court in specific situations to guarantee compliance with court orders, protect property belonging to plaintiffs and/or defendants in contested legal matters, or ensure that fiduciary responsibilities live up to their obligations.

What Can Trigger a Claim on a Bond?

The principal�s violation of the terms and conditions of a surety bond can trigger a claim on the bond. For example, a construction contract might violate the terms of a contract bond by failing to complete the work as specified in the bond. The obligee would suffer a financial loss from having to hire another contractor to complete the project. That would constitute grounds for filing a claim against the contract bond.

As another example, if a court-appointed executor of an estate embezzled funds from the estate, causing a financial loss to the beneficiaries of the estate, the court, as obligee, would have grounds to file a claim against the bond to offset that loss.

The best way for any principal to avoid claims being filed against a surety bond is simply to avoid violating the terms and conditions of the bond in the first place. As they say, an ounce of prevention is worth a pound of cure.

What Does the Claims Process Involve?

The surety�s first priority is to ascertain the validity of any claim submitted against the bond. The surety will investigate the matter and reject the claim if it is determined to be illegitimate. If the claim is found to be valid, however, the surety will ensure that the claimant is compensated.

The ultimate burden of paying claims belongs to the principal, as virtually all surety bonds include a clause that indemnifies the surety. In some cases, if a settlement cannot be reached, the surety will simply inform the principal of the amount that the principal must pay directly to the claimant. In other cases, the surety will pay the claimant initially and then collect reimbursement from the principal. Sometimes, the surety will make an arrangement that allows the principal to reimburse the surety in installments over a specified period of time.

Have Bond Questions?

There are a number of factors to consider when choosing a surety bond provider. The agents at Single Source Insurance are experienced and happy to help answer your questions. Contact us today to see what our experienced surety bond professionals can do for you.

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Surety Bond Parties: Understanding Each Role

Jul 10 Posted on

A surety bond is a contract that brings three parties together in a legally binding agreement that carries certain benefits and responsibilities for each of them. There are many different types of surety bonds, which are broadly categorized as license and permit bonds, contract bonds, and court bonds. The rights and responsibilities associated with type of bond vary in terms of the specifics, but the general role of the three parties involved remains the same. Here�s what you need to know about surety bond parties.

Who are the Parties to a Surety Bond?

The three parties to any surety bond agreement are the:

  • The obligee that requires the purchase of the bond
  • The principal required to purchase the bond
  • The surety that underwrites and issues the bond

Each party has a different purpose and goal in entering into the surety bond agreement.

  • The obligee is seeking a guarantee of some obligation from the principal
  • The principal needs to provide that guarantee through a third party
  • The surety is the third party that is in the business of issuing such guarantees in exchange for a premium payment from the principal

The main thing that differs from one surety bond to the next is the nature of the specific obligation involved.

The Obligee�s Role

The obligee is essentially the �client� for the surety bond�the party to whom the principal has some obligation. The obligee could be:

  • A state agency that licenses certain professionals and requires a guarantee that the licensed party will conduct business in an ethical manner that complies with applicable laws, rules, regulations, and industry standards (example: a state’s division of motor vehicles that licenses auto dealers)
  • A private entity that enters into a contract with a service provider and requires a guarantee that the contracted work will be performed in accordance with all contract specifications, terms, and conditions (example: a developer hiring a construction contractor)
  • A government entity with jurisdiction over a legal matter (example: a court adjudicating a lawsuit involving contested property or overseeing the actions of a fiduciary)

The obligee establishes the terms and conditions of the surety bond contract and sets the required bond amount. The obligee has the right to file a claim against the surety bond in the event that the principal fails to abide by its terms and conditions.

The Principal�s Role

The principal is the party whose obligation (performance or actions) are guaranteed by the surety bond. Failure to live up to that obligation can trigger claims against the bond. The principal bears full financial responsibility for paying valid claims.

The Surety�s Role

The surety is the firm guaranteeing that the principal will live up to the obligation established by the surety bond contract, whatever that obligation may be. The surety performs the due diligence to ensure that the principal meets the surety�s underwriting standards, which take into account the likelihood of claims against the bond and the principal�s ability to pay them.

The surety will investigate any claim against the bond and attempt to negotiate a settlement that avoids costly litigation resulting in an award for damages. The surety may pay a valid claim on behalf of the principal, but they will then seek reimbursement from the principal. The surety is protected from financial liability for claims by an indemnity clause that is included in virtually all surety bond agreements.

Speak With An Agent

If you are need to obtain a surety bond, whatever your obligation may be, our experienced surety bond professionals are here to help. Contact Single Source Insurance today for assistance with your questions or to request a quote.

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The New York Surety Bond Assistance Program

Jul 10 Posted on

Some contractors find it challenging to obtain surety bonds, which can put them at a disadvantage in competing for and securing jobs. New York has established a program to assist them in getting the surety bonds they need for projects sponsored by state agencies or agencies of the City of New York. The New York Surety Bond Assistance Program (known as NYSBAP) provides a guarantee of up to 30% on bid, payment, and performance bonds through Empire State Development. The guarantee can also be used to secure a bond line.

Who is Eligible for NYSBAP?

The eligibility criteria for NYSBAP address the size, credit, financial condition, experience, and ownership of a contracting business. Specifically, the contractor or contracting firm must qualify as a small business or MWBE (Minority or Woman-Owned Business Enterprise), with:

  • Gross average revenue of at least $400,000 in each of the preceding two fiscal or calendar years but not more than $5 million in the most recent year
  • A minimum credit score of 600
  • At least two years of business history and experience doing the same kind of work as required by the contract opportunity in question

Certain criteria also apply to the bond line or surety bond for which a contractor can receive an NYSBAP guarantee:

  • A maximum bond line or project size of$2 million
  • The project must be sponsored by an agency of the state of New York or New York City

Pre-Assessment

The approval of a given contractor to participate in NYSBAP is not solely the result of meeting a surety company�s underwriting requirements. Empire State Development also reviews every application. To get an idea as to whether you might be eligible for NYSBAP, complete the pre-assessment questionnaire.

NYSBAP offers programs in partnership with New York State Small Business Development Centers for contractors aiming to qualify for NYSBAP guarantees. One-on-one technical assistance as well as classes and workshops are offered at various locations throughout the state.

The Application Process

The detailed eligibility guidelines provided by NYSBAP identify certain documents a contractor may need to furnish in support of an application. The application itself is available on the NYSBAP website in both PDF and MS Word formats. Once your application is completed, send it to Empire State Development. Please note that a manual signature is required in order for an application to be considered.

How Much Does It Cost?

There are no fees or costs associated with the bond line and bid bond guarantees from Empire State Development. Payment and performance bonds are a different matter. For those guarantees, the surety company issuing those bonds may require an Irrevocable Letter of Credit from a participating bank, which typically carries a charge to the contractor of approximately 1%. That charge is in addition to the bond premium the contractor will pay to the surety company.

Single Source Insurance Can Help

We are more than happy to accept bond guarantees issued by Empire State Development through the NYS Bond Assistance Program. Contact us today to see what we can do for you.

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What to Look for in the Best Surety Bond Companies

Jul 10 Posted on

There are plenty of reputable surety bond companies to choose from, but that doesn�t mean they�re all equally able to meet your specific needs. The first step in selecting the right company is to define your selection criteria. Here�s what to look for in the best surety bond companies.

Type of Bonds

Most surety bond companies can get you any type of bond you need, but some may have more experience than others with a particular type of bond. If you need a bid bond or a performance bond bond, you may do best with a surety bond provider that focuses on construction bonds and knows the construction industry well.

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Licensure

It�s common for surety bond companies to be licensed to do business in many states, or even all states. Still, it�s essential to make sure that the company you choose can legally issue bonds in your state. At Single Source Insurance, we offer bonds in all states. It�s easy to browse by state on our site!

Bond Capacity

A bond company�s per-customer single bond and aggregate bond limit isn�t likely to be a concern for the occasional bond purchaser. But it can be a big deal for companies that need large bond amounts (which is often the case with construction contractors), or who need to be bonded in multiple states. If you have substantial bonding needs or plan to expand into additional states, make sure you select a surety company with sufficient bonding capacity.

Customer Service

As a consumer, you probably rank customer service near the top of the list in the companies you do business with. Customer service quality is just as important, if not more so, when choosing a surety bond company. Look for a firm that has a reputation for being responsive to customers� needs and easy to work with.

One customer service consideration is whether small businesses get the same kind of attention from a given surety bond provider that larger ones do. If purchasing a surety bond is a one-time or rare occurrence for you, try to get an idea of how willing the company is to devote time to educating and helping you.

The best way to ensure you choose a company that provides great customer service is to check online ratings sites and look for reviews posted by those who have done or are doing business with the company you�re considering.

Single Source Insurance currently has a 5-star Google rating and an A+ BBB Rating.

A.M. Best Rating

Your obligee is more likely to accept a bond from a company that is highly rated by A.M. Best, the rating service that companies nationwide rely upon to assess a surety bond company’s financial strength and ability to meet its contractual obligations. Look for a company with an A.M. Best rating of A+ (superior) or A (excellent).

Treasury Listing

If you need to obtain a surety bond in order to do business with the federal government (for example, as a contractor on a federally funded public works project), look for a surety bond company that is �T-Listed,� or on the Department of Treasury�s List of Approved Sureties.

Trust Single Source Insurance

At Single Source Insurance, our experienced surety bond professionals will gladly answer any questions you may have about the bond you need and how we can help you get it. Contact us today for assistance.

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High Risk Surety Bonds

May 22 Posted on

Not everyone who applies for a surety bond will be approved. Additionally, of all the applicants who are approved, some will pay a much higher premium for a bond than others. That�s because the primary consideration in evaluating surety bond applications is the applicant�s personal credit score. A high risk surety bond is simply a surety bond underwritten by a surety company that is willing to work with people who are credit-challenged.

If you have poor credit and need to get bonded, contact Single Source Insurance today. We can work with you to get you the bonds you need.

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Why Are They Needed?

Without high risk surety bonds, people with past credit problems, including bankruptcies, judgments, or liens might not be able to get the surety bond they need in order to obtain a business license, work on publicly funded construction projects, serve as the guardian for a minor, or take on any other job or responsibility that requires bonding.

You might be wondering why your credit score matters if you have enough money to pay the bond premium. The problem is that if you violate any of the terms and conditions of your bond�for example, by failing to comply with a state law regulating your industry�anyone who suffers a financial loss as a result of your actions can file a claim against your bond.

If that happens, the surety company that issued the bond will step up and pay the claimant on your behalf. But that payment is essentially a loan to you, which must be repaid in full. That�s what the surety company is concerned about�whether you have enough money to reimburse them for any claims they pay for you or are creditworthy enough to borrow the money elsewhere to reimburse them.

What Do They Cost?

There are two factors that enter into the premium calculation for any surety bond: the required amount of the bond (known as the bond�s penal amount) and the premium rate. The penal amount is established by the bond�s obligee�the party requiring the bond. The premium rate is set for each applicant by the surety (the company underwriting and issuing the bond).

The rate paid by applicants with good credit is referred to as the standard market rate, which is between 1% and 3% of the full penal amount of the bond. The rate for individuals with poor credit, however, can be as high as 5% to 15% of the bond�s penal amount. Some sureties allow applicants to pay for their bonds in installments rather than a single premium payment for the entire year or bond period.

Is Collateral Required?

In some cases, the surety may require an applicant to put up collateral to ensure reimbursement for claims paid by the surety. When collateral is required, it may be as much as the full penal amount of the bond.

Bad Credit? You Can Still Get Bonded

At Single Source Insurance, we make it easy to get a bond, even with bad credit. If you have credit issues that could put you in the high risk category, we can still work with you. Apply online today!

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How Long is a Surety Bond Good For?

May 15 Posted on

Surety bonds are required for a number of different purposes�in order to obtain a business license, to be awarded a construction contract, or to satisfy a court order, for example. They serve as the bonded individual�s pledge to act in accordance with all relevant laws, rules, and regulations, as spelled out in the surety bond contract. But how long are they good for? Let�s take a look.

How Do They Work?

Regardless of the purpose of a given bond, all surety bonds involve three parties who are bound together by a surety bond agreement. The obligee is the party who requires the bond and establishes the maximum amount that the bonded individual must pay to claimants. The principal is the party who is required to obtain the surety bond and maintain it for a specified period of time. The surety is the party that underwrites and issues the bond and renews it as needed.

During the period of time that the bond is in effect, a party who is harmed financially by the unlawful or unethical actions of the principal may file a claim against the bond. The surety verifies the validity of each claim before paying it as an advance on behalf of the principal. Ultimately, however, the principal is financially responsible for claims and must reimburse the surety for all payments made to claimants.

How Long Are They Good For?

License & Permit Bonds

Many of the surety bonds issued are license and permit bonds that must be purchased as part of the process of becoming licensed to conduct business in a particular profession. If you work in a profession or occupation that requires licensing in order for you to operate legally in your state, you’re likely to be required to obtain this type of bond. For example, all states have their own requirements for licensing as a motor vehicle dealer, and they all involve the purchase of a surety bond.

In such cases, there must be a bond in place at all times to avoid license revocation. This typically means renewing the bond at every license renewal to maintain continuous coverage. The bond agreement may specify a bond term length of one year or more, as long as the premium for the entire period is paid up front. The specific time period of your bond will be determined by the bond type and any regulations in place. For questions, contact our knowledgeable agents today.

Construction Bonds

Construction bonds typically have a coverage period for the entire duration of the construction project, though there can be some that extend beyond a project completion date. For questions, contact our knowledgeable agents today.

Court Bonds

Court bonds must be effective for as long as it takes to resolve the legal matter the principal is involved in. Or, the bond period may be specified for as long as the principal has fiduciary responsibility—for example as the guardian of a minor or executor of a state. For questions, contact our knowledgeable agents today.

Your Responsibility To Renew

Whatever the duration of the coverage period, it�s the principal�s responsibility to respond to the renewal notice from the surety and renew the bond by its expiration date. The surety will review the same factors considered when setting the premium for the original bond purchase and calculate the renewal premium that must be paid to keep the bond in force.

Get The Bonds You Need

Single Source Insurance offers a wide range of bonds with convenient online applications. We�ll work with you to get a surety bond with the coverage period you need.

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How to Qualify for a Surety Bond

May 8 Posted on

Are you wondering how to qualify for a surety bond? Read this post! This guide should tell you everything you need to know. If you have any questions, don�t hesitate to contact our knowledgeable agents.

What Are Surety Bonds?

A surety bond is the purchaser�s guarantee to abide by relevant laws, rules, and regulations or pay the price, so to speak. These requirements are spelled out in the terms and conditions of the surety bond agreement. The bond provides funds to compensate parties who suffer a financial loss caused by the unlawful or unethical actions of the bonded individual.

Though surety bonds are often confused with insurance policies, they are fundamentally different. The main difference lies in who benefits in the event of a claim. While an insurance policy pays a monetary benefit to the policyholder, a surety bond pays claims filed by those injured by the bonded individual. It�s important to understand that distinction.

How Do They Work?

The three parties to a surety bond agreement are:

  • The obligee (the party that requires the purchase of a surety bond)
  • The principal (the party purchasing the bond)
  • The surety (the party underwriting and issuing the bond)

The obligee establishes the required amount of the bond, also referred to as the penal amount. This is the total amount of money guaranteed to pay claims against the bond.

The principal pays the surety a premium to obtain the bond, which is good for a predetermined period of time. If within that period of time the principal violates the terms and conditions of the bond, any party who suffers a financial loss as a consequence has the right to file a claim against the bond.

The surety will ensure that any claim is valid before paying it. However, the ultimate legal responsibility for paying claims rests with the principal, who must reimburse the surety for the amount paid out on the claim. This is price the principal pays for having failed to live up to the terms of the surety bond.

How Do I Qualify?

The surety�s main concerns in evaluating a surety bond application include:

  • Whether the applicant is likely to incur claims
  • Whether the applicant has the ability to reimburse the surety for any claims paid

The key factors the surety looks at when qualifying applicants are:

  • The applicant�s personal credit score
  • Personal and business finances
  • Assets
  • Resumes or other evidence of industry experience and professional reputation

These factors all may enter into the surety�s approval of an application. But what typically determines the premium you will pay for the bond, is your credit score. The higher that is, the lower the premium you will pay.

Get Qualified Today

Want to know if you qualify? Simply apply for a bond with Single Source Insurance online. We offer a wide range of bond types with quick turnarounds.

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