3 mistakes to avoid when purchasing surety bonds

Let’s face it: surety bonds can be overwhelming.

There are many different types of bonds. You have to think about the cost of the bonds and sometimes the process can be more difficult than it needs to be. We know the feeling, and we work hard to make bonding easy.

Here are three mistakes to avoid when purchasing surety bonds – whether as a first-time buyer or an experienced contractor searching for a new surety. 

Purchasing the right surety bond

Do you need a contract or commercial bond? Is a construction bond the same as a contract bond? There are a variety of different bonds covering many types of obligations and often the names differ from state to state. Some businesses and individuals need bonds specific to their profession. For example, many municipalities require contractors to provide bid, performance, and payment bonds.  Material suppliers may be required to provide supply bonds.  Electrical and plumbing contractors may be required to provide electricians and plumbers license bonds. 

When purchasing surety bonds, look for a trusted, reliable surety agent who knows exactly what you need. First-time buyers have made this mistake before and it may happen again. Make sure you have a knowledgeable surety team on your side.  

Popular article:
Interested in building a successful construction or contractor team? Here are three positions you’re not thinking about.

Bonding for the wrong amount

After learning the basics of surety bonds, the principal needs to confirm the exact bond amount needed. In some cases there is a fixed bond amount that’s provided by the obligee requiring the bond. In other cases, the principal may have to compute the bond based on a formula. Whatever the case, make sure you double check the amount needed before purchasing surety bonds. This may help save you time in the long run. 

Save yourself the headache!
Make sure you have the full bond amount approved by the person asking you to secure a bond or you’ll have to go through the bonding process all over again. Find an agent to learn more. 

Contracting with a less than reputable surety

Whether you are a first-time surety bond buyer or have 30 years’ experience, make sure you work with a reputable surety company. Unfortunately, fraud still happens and not all surety companies are trustworthy or financially stable. When researching the surety that will issue your bond, you’ll want to verify the following:

• A.M. Best Company with a financial strength rating of “A” (excellent)
• Check to see if they are members of organizations like the Surety & Fidelity Association of America (SFAA).
• How long has the surety been in business?
• Search the names of the employees you’re working with.
• Be sure the surety is licensed to do business in your state.
• Is the carrier noted on the Department of Treasury’s Circular 570, List of Certified Companies? 

As long as you’ve got a reputable surety by your side who knows the business, bonding isn’t that daunting after all. We hope this helped clarify some issues when it comes to purchasing surety bonds. 

UFG Surety is happy to help first-time buyers or experienced business owners learn more about the process. 

Please contact us or find a surety agent to learn more.