By Erle Benton, AVP, Surety Contract Underwriting, UFG Surety

How can a small or newer contractor obtain a surety bond? Credit-based surety bond underwriting programs could be the answer.

Unlike traditional or standard surety underwriting that requires a deep dive into a company’s historical financials, credit-based surety underwriting — sometimes called a fast or quick bond program — relies on a personal credit report to assess the risk.

Surety underwriters look at specific information to make a credit-based contract bond determination

In general, a surety underwriter will likely examine information such as this to issue a fast credit-based bond approval:

• A job size that’s below the surety carrier’s threshold for their quick bond program
• A job type that meets the surety’s quick bond requirements
• A qualifying credit score

Agents can usually submit small credit-based bond requests easily through a surety carrier’s online bonding platform because of the limited information needed, making this a convenient option for urgent small bond needs. Online submission can lead to a faster surety bond decision, which helps a contractor quickly move forward with their job while giving an agent additional time in their day to pull together the more in-depth financial presentations needed for traditional contract surety bond underwriting.

Related reading: How timely financial statements can help contractors maintain surety bond capacity

The cost of a credit-based surety bond may vary slightly but, in general, a 3% flat rate should be considered normal.

It’s important to keep in mind that sureties may need to pivot their quick bonding program requirements from time to time, so agents will want to keep apprised of carrier news and announcements.

The risk might not be a good fit for credit-based bonding if it includes characteristics such as these and others:

• Class of work is exempt
• Credit score isn’t adequate  

Here’s an interesting scenario to consider, too: Let’s say the surety has agreed to support $650,000 of final bonds with an exposure cap of $750,000. In that case, the next potential final bond will need to have a contract price of $100,000 or less. In a scenario like this, the use of a quick bonding program on a regular basis may not be a good option.

If the risk isn’t a good fit for credit-based surety underwriting, agents may still have an opportunity to help contractors get bonded through a traditional surety bonding program.

One thing that both credit-based bonding programs for contractors and traditional contract surety bond programs have in common is the need for an indemnity agreement. Putting this required agreement in place can be a fast step, and it will need to be done before the first formal bond approval is provided.

At the end of the day, newer companies and small contractors may likely have a bonding option in credit-based bonding programs

UFG Surety, for example, is proud of our ufgQuick credit-based bonding program that offers high single bond and aggregate limits, a robust appetite and a dedicated underwriter to keep business moving quick — ufgQuick! Our agents can choose between submitting a ufgQuick request through our online bonding platform or an application via email, but online submission is the fastest experience. And because of our strong team, the transfer graduation from ufgQuick underwriting to traditional surety underwriting is efficiently streamlined.

Agents, let us know if you have any credit-based contract bonding questions. Contractors, find a UFG agent near you to tap into our supportive surety services.