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.
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.
Understanding the Costs of High Risk Surety Bonds
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!