What is a Surety Bond, Anyway?

Aug 7 Posted on

surety bond

When you’re starting a business, navigating the governmental red tape can be an intimidating, tedious task. If your business application requires a surety bond, you might be asking yourself, “What is a surety bond, anyway?” Keep reading to learn more about surety bonds before you buy.

What is a surety bond?

A surety bond is a three-party agreement between:

  • The principal�This is the person or entity purchasing the surety bond and agreeing to uphold the terms of the bond.
  • The obligee�The obligee is the (usually governmental) entity requiring the purchase of the bond. For example, the New York DMV requires that auto dealer applicants and licensees in the state purchase a surety bond.
  • The surety�The surety company provides financial backing for the surety bond, guaranteeing payment to the obligee in the event that the principal violates the terms of the bond.

To put it more simply, a surety bond is a contract in which the principal promises the obligee that they won’t violate the bond’s terms, and the surety company backs that promise financially.

What happens if the principal violates the bond’s terms?

Most surety bonds’ terms are no more than a promise to uphold industry and professional laws. The principal agrees to follow the law and maintain a surety bond as a way for customers or clients to seek reimbursement if any of those laws are violated.

If the principal breaks a law they promised to follow by purchasing and signing their surety bond agreement and causes financial damage to a customer or client, the damaged party can file a claim and seek compensation. If the claim is proven to be valid, the surety will pay the claim up to the bond’s full amount. So, if a $3,000 claim is made on a $10,000 surety bond, that claim is paid by the surety company.

However, it’s important to note that with surety bonds, the principal is assuming all risk�if the surety company has to pay that $3,000 claim, the principal must then repay the surety. You can think of a surety bond as insurance for your customers, protecting them in the event that your business does not adhere to the law.

I’m not going to use a surety bond, so why do I need it?

We’re glad that you don’t have any plans to use your surety bond! It’s a safeguard, a just-in-case precaution that protects the most important part of your business: your customers. If you never use the bond, that’s good for you and your business.

Another important reason you need a surety bond is that having one is probably the law in your industry or profession. You might lose your business license or face fines if you neglect the requirement.�It also serves as an indication to your customers that your business is trustworthy and in compliance with the law.

Now you know what a surety bond is, get in touch with Single Source Insurance today! Get bonded and get the answers to any other questions you might have.

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Washington Money Transmitters and Currency Exchangers Need Surety Bond

Aug 4 Posted on

Washington money transmitters and currency exchangers must adhere to the provisions of SB 5031 following its passage in April and subsequentJuly 23, 2017 effective date.

A notable impact SB 5031 makes on Washington money transmitters is in its elimination of allowing other forms of financial security in place of a surety bond. This means that applicants will no longer be allowed to submit certificates of deposit or any other form of security the Director of the Department of Financial Institutions previously accepted.

The surety bond amount is calculated based on the previous year’s money transmission and payment instrument dollar volume. The bond must be at least $10,000 and no more than $550,000, though the Director may increase the bond up to $1,000,000. The surety bond is continuous until cancelation, which becomes effective 30 days after the Department receives written notice of its cancellation. The bond must cover claims for five years following the money transmitter’s violation of state and/or federal laws, or for five years after the business stops providing money transmission services, whichever is longer.

Washington money transmitters, like money transmitters in most states, are licensed through the Nationwide Multistate Licensing System (NMLS). Washington state has a list of prerequisites prepared for money transmitter applicants that should be reviewed before submitting an application. Among other requirements, some of the prerequisites include the following:

The state has also assembled a list of general licensure requirements for Washington money transmitters, which is meant to give applicants an idea of any issues that might come up during their application process. Some of the information required on the license application is as follows:

  • $1,000 for corporate business location and NMLS processing fee
  • Criminal background check ($36.26) and credit report authorization ($15) for all control persons
  • DBAs and other trade names
  • Resident or registered agent if business’s corporate location is out-of-state
  • MSB and Master Business License numbers
  • Recent audited financial statements for the business, or for individuals if sole proprietorship
  • Original, signed, sealed surety bond

Online currency exchangers in Washington must also become licensed and acquire a surety bond under SB 5031. Currency exchangers exchange one government’s currency for another’s. Currency exchangers apply for the same licenses as money transmitters, but their surety bond must be between $10,000 and $50,000, with rules to be implemented by the Director. Their bond must have a one-year tail on claims as opposed to money transmitters’ five-year tail.

Ready to get a Washington state surety bond? Get in touch with Single Source Insurance today!

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New Statewide Licensure Regulations for Missouri Electrical Contractors

Aug 2 Posted on

�missouri electrical contractors

Missouri electrical contractors have new regulations to follow with the passage of SB 240, which takes effect on August 28, 2017. The regulations pertain to their statewide licensure and include new surety bond requirements.

Missouri electrical contractors will be able to hold statewide licenses under the provisions of SB 240, meaning they could conduct business anywhere regardless of the jurisdiction’s licensing laws. The Division of Professional Registration within the Department of Insurance will handle Missouri electrical contractors’ licensure.

When applying for a license, Missouri electrical contractors must meet the following criteria detailed in SB 240:

  • At least 21 years old
  • Provide proof of $500,000 in liability insurance
  • Post surety bonds as required by each political subdivision in the state of Missouri in which work will be performed
  • Pass a standardized, nationally accredited electrical assessment examination

Would-be Missouri electrical contractors must satisfy training requirements by completing training in one of the following ways:

  • 12,000 verifiable practical hours installing equipment and associated wiring
  • 10,000 verifiable practical hours of installation and having received an electrical journeyman certificate from a U.S. Department of Labor-approved apprenticeship program
  • 8,000 verifiable practical hours of installation and having received an associate’s degree from a state-accredited program
  • 4,000 hours supervising installation and having received a four-year electrical engineering degree

Any Missouri electrical contractors whose license was issued before January 1, 2018, passed an electrical assessment exam to obtain the license, and have completed 12,000 verifiable hours of installation will be issued a statewide license. Statewide licenses must be renewed every three years.�Political subdivisions (e.g. cities or counties) will still have the authority to issue their own electrical contractor licenses, but must recognize statewide licenses in lieu of local licenses.

The surety bond provision of SB 240 requires that Missouri electrical contractors obtain any surety bonds required in the political subdivision where they work. For example, St. Louis county requires electrical contractors to obtain a $10,000 surety bond, so electricians working in that county must obtain that surety bond. Before working as an electrical contractor in Missouri, check with local government to be sure you stay compliant with their laws.

Ready to get a Missouri electrical contractors’ surety bond? Single Source Insurance can help you get bonded fast.

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