What Is Surety Bond Insurance?

Surety Bond Insurance is actually a misnomer. A surety bond, though associated with insurance companies, is a line of credit. According to JW Surety Bond Consultants, a surety bond is a guarantee.

Features

A contractor will present a bond to a client to prove that he or she is financially able to take on a particular job. The client is also assured that if the contractor fails to perform accordingly, the client will have finances available to hire a new firm to finish the job.

Potential for Growth

For a small firm, the difference between landing a large account or not may ride on whether or not the company can acquire a surety bond. Large corporations and government agencies require bonds as proof that contractors can live up to their end of a contract.

Cost

The going rate for a surety bond is around $25 for every $1000 of coverage, says Marjorie Young, senior vice president of New York-based E.G. Bowman Co., Inc. However, depending on the applicant's credit and other factors, such as the type of bond, the rate will vary.

Types of Surety Bonds

Surety bonds fall into three main categories: commercial bonds, contractor bonds and court bonds.

Benefits

Without a surety bond, a contractor might be required to put up cash as collateral. Rather than tie up assets, surety bonds offer a cost-effective solution for contractors.

Resources

• JW Surety Bond Consultants
• E.G. Bowman Co., Inc.