Commercial surety bonds have a broad range of rates lately. Bonding companies are writing premiums ranging from 1% to 20%. This 20% premium can be extremely costly even for a small bond. What does an agent look for when setting these rates? This posting will attempt to explore the manner of which bonding companies come to this conclusion. Later, we will explain how to decrease your rates.

Writing a commercial bond is not as simple as checking your personal credit. Among the many considerations are: corporate financial statements, private financial statements of owners and their spouses, personal credit of owners and possibly spouses, some general pedigree information, bond forms size and legal language, and sometime the principles professional experiences (resume). Some specialty programs may require more or less information for certain classes of business, but the above is typically what is expected to be submitted when applying for a commercial bond.

Once a surety has this information, they will qualify the applicant or decline them if they fail to meet the criteria in their underwriting guidelines.

The Application: A general surety bond application asks for information to learn the basics of the guarantee. Data such as principal / obligee contact information, bond amount, corporate and personal information and the like. Any data collected that is inaccurate or missing could cause a declination of your application for the commercial surety bond. Some bonding companies will decline if they know the obligee is unfavorable.

Financial Statements: The core decision to writing a bond is in the business financial statements. The surety will carefully review this critical information that is the basis of acceptance or declination. Handwritten ledgers are not professional and an accounts statement from the CPA will surely go a long way when applying for a bond. The accrual method is recommended as it reveals a clear view of your business. This compilation of your statements including disclosures and full notes will be orderly and easy for the surety to follow. Avoid cash basis practices. This method is unclear when it comes to balance sheets and may confuse bond producers in their thought process. Internal business financial statements are acceptable for $200,000-300,000 bonds and less but a CPA is the better way.

            Bond producers are also looking for owners’ personal financial statements as well. Net worth is highly regarded and sureties want to know if your liquid assets are enough. Assets such as life insurance, personal property and autos are not real considerations. Liquid cash and real estate ownership are the high runners and necessary.

Resume: These credentials assure the bonding company that the principal is competent in their field. The more experience you have may result in lower rates depending on the sureties’ confidence factor in your business avoiding claims.  The resume is a critical component in the application process of a new business.  Because new businesses do not have financials, Sureties rely heavily on an applicants resume in a way to get to know them.

Bond Form: As mentioned above, this is the language used when writing a bond. When the obligee creates a bond, they must precisely state what this particular bond is supposed to do. The bond is a guarantee. The specifics of the bond may determine the rate of the bond. A business class such as freight brokers is more risky than others so, the bond form must be carefully written. Otherwise claims could occur and the bond may become high risk. Bond producers view two clauses in detail. They are cancellation clause and aggregate clause.

A Cancellation Clause simply states that a surety has authority to cancel a bond. The bonding company is relieved of any liabilities. A 30 or 60 day written notice is required to the principal and obligee.

The Aggregate Clause is a statement about amount of claims versus bond amount. For obvious reasons a single claim or combination of claims cannot exceed the amount of the bond, for example a 75,000 bond may not have a claim or claims exceeding 75,000 and the surety will not pay on any additional claims. 

Personal Credit: Credit reports are deceptive in that you are mislead by thinking that the score is all that matters. Bonding companies delve deeper into items that are more significant.

Bankruptcy: A definite down side of declaring bankruptcy is that it feels like it can haunt you forever. The same holds true here in that sureties will hold you in the high risk programs until 7 years of an account’s discharge.

Tax Lien: Bond producers treat tax liens the same as bankruptcy. High risk program applies for non paid or not nearly paid at the 7 year mark for most agencies.

Civil Judgment: If you have ever had a civil judgment some bonding companies won’t write you under any circumstance. Other agents may review your explanation after judgment is satisfied and qualify you. Check with your agent if this is important to you.

Unpaid Collection: Although unfavorable, if your credit report reflects a collection but it is now paid, you may still qualify for a bond. Any unpaid collection is negative and if you are not declined, you will certainly be placed into a high risk surety bond program.

Late Child Support: You may be surprised to find that unpaid child support payments are the worst-case scenario. No bonding company will write you if you are in this circumstance and you may be forced to seek other alternatives. High risk program is out of the question for unpaid child support.

Do bonding companies look at credit scores at all? Of course they do but there are many other considerations to observe. A score higher than 650 tells the bond producer that there are little anomalies and your chances for qualifying are very good. Some agencies are conservative while others are liberal in underwriting a surety bond and their decision will vary depending on what they are looking for.

According to a report released today by the National Association of Realtors, inventories of existing single faimily homes rose to there highest level in 18 years.  This as sales of existing homes fell 4.3% when compared to the previous month.

The housing market had already fallen to its lowest levels in 16 years when turbulence in the credit markets created further uncertainty.   Because of these market conditions, sureties are implementing new criteria to there underwriting practices that are making it just that much harder for mortgage brokers to obtain mortgage bonds.  In fact those that can get bonded are finding that rates are climbing as sureties try to protect themselves from this greater perceived risk.  On the same note as above, mortgage lenders will find approval near impossible, as several sureties are dropping currently bonded lenders.

When writing a traditional surety bond, losses are not considered. For instance, approval on a surety bond is for all practical purposes designed to be flawless and have no claims. If the underwriters believe that the applicant will not have any claims, they should be approved. By comparison, insurance underwriting expects that there will be losses and as a result the premiums are higher. If a surety bond applicant is considered high risk, some sureties may require the applicant to post 100% collateral, while other bonding companies flat out decline the offer. This is about to change. Some agencies are rethinking how bonds should be written for future considerations. As this is a traditionally conservative industry, these fore-thinkers are a minority.

Losses are not expected in underwriting a surety bond because this is supposed to be a service fee. Unlike an insurance policy, claims are not built into the premiums because claims are supposed as non-existent. These suretyship guidelines are antiquated because the reality is, losses do occur, even with the most conservative of agencies. No matter how great the underwriting, we now know that losses are, although limited, inevitable. It has taken some time for bonding companies to realize this. Now recognized, why not change our philosophy on underwriting? A bond should be written with premiums that reflect the principals’ risk factor. A high risk principal should have higher premiums. Although this makes sense, it goes against the grain of traditional bonding companies.

Approving high risk surety bonds with higher premiums is not new. In fact, this has been around for years. We have worked successfully with clients and these high risk / high premiums are proven methods in our business. Even with rates 10 to 15 times higher than average commercial bonds, this still is the best course of action for applicants with bad credit. What is more surprising is that little claims have been filed in this high risk program. They are considerablely less than the 5 to 15 claims per average traditional surety. I can only speculate that high risk principals are very conscience during the bond existence, as they do not want to stay as high risk. Bonding companies who are writing these types of programs are producing well. Some still wary after the fall of the soft market, are reluctant to take the risk, but the new thinkers are capitalizing and creating a monopoly for themselves.

What is even more rare, are sureties willing to write higher risk contract bonds.  The approval for bonds for a five-year contract virtually does not exist these days.  Fortunately, there are some contract bonding companies that are willing to change traditional suretyship and take larger risks with the expectation of a 0% loss.  Following the high-risk commercial bonds, higher risk contracts, also known as long contracts, will expect increased rates as well.  Just as surprising to us are the sureties willing to write the higher risk contract bonds do not experience greater losses than their peers who shy away from writing such bonds.   The average loss ratio of our new thinking contract bonding companies is 14.35%, which is lower than many of old style sureties.  One reason for this is their high volume as they have a monopoly on the market, and remember few sureties are willing to write these dangerous bonds.

Surety underwriters contact us often about wanting to do business with us.  These underwriters are well aware of our reputation of being a high volume agency that has a diverse range of accounts and they want in on the action. Rarely do we get appointed with new sureties, for they offer the same as the competition.  They will need to think outside of the box if they wish to increase their book of business and re-create underwriting and rate guidelines. Our agency would not want to set our clients up with a surety that is no different from every other market out there.  We suggest finding market segments that are not flooded with other sureties offering identical programs. If you are an open-minded underwriter looking to expand your book of business, please contact us.  We have set up numerous programs and continue to be successful to date. We agree with the philosophy of approving programs with higher premium rates which offset the cost of claims and we differ from the market which might have been soft in the past approving higher risk bonds.

The time is now when the surety industry realizes that a 0% loss is not an option. The way traditional business has “always did it before” is past. Old fashion thinking is waning and the new way of forward thinking will be the only way to survive in this industry.

Often times when someone calls in to our office the first question they have is “how do I get bonded?” This question can lead down many paths, but all too often it is revealed that this question is asked out of confusion. For this reason we are going to try and clarify what “getting bonded” means.

Often this call comes from people who have seen a sign saying “insured” or “bonded” at the locksmiths, or on advertisements in the yellow pages; after seeing this they think, “maybe my company should be bonded too.”

There are several kinds of “bonds”, one kind is a fidelity bond, but don’t be fooled by this name, a fidelity bond is actually not a bond at all, but a type of insurance. The company who is “bonded” is the beneficiary of the policy, not there clients.

At Bryant Surety Bonds, Inc. we specialize in surety bonds. A surety bond is a three-party agreement (obligee, principle and surety) that is a requirement of the obligee onto the principle. In the situation where the principle defaults, the surety will make the obligee whole again. Surety bonds cannot be issued to a company that “wishes to be bonded” as these bonds are created to guarantee an agreement.

Last week we introduced out new online application, and since its June 29th arrival, we have had some terrific feed back.

This new format allows applicants to fill out, and complete the application, 100% online.  No more printing out and faxing in required.  In fact many lines of business will now find that they will get an instant quote, or quote range. 

With this online application comes a new secure database that allows you to easily maintain your account status, as well as apply for new bonds with out re-entering your personal information.  This feature is extremly useful for brokers who use our agency.  Now all of your clients are easly mantained and managed on one page.

We’ll have more information about our application as time goes on.  In the future we plan to add great new features as well as adding more lines of business to our instant quote abilities.

Time after time an application is declined, or delayed because of the bond form that is attached to it (or in some cases, because no bond form is attached.  This bond form is the key ingredient for you application to be accepted, because it is this form that is spelling out the terms of the guarantee.

As most of you know, a surety bond is a three party agreement involving the surety, the principal and the obligee.  The bond is a guarantee of something (depending on the nature of the business), and the bond form explains the terms and conditions of this guarantee.  It is for this reason that you must submit the correct bond form, and make sure it is up to date; otherwise you experience delays or may even be declined.

So how is the best way to find these forms?  First you can turn to the internet.  The Surety & Fidelity of

You may be asking why each bonding agency doesn’t keep the bond forms on file.  The answer is simply to it would take far to many resources.  There are hundreds of bonds; each requiring their own bond form, further compounding this issue is that each state has their own specific bond form for each type of bond. As you can see this leads to thousands of different bond forms to keep on file.  However the largest hitch in the plan may be that these forms are periodically updated with out notice.  As you can see it would take an incredible amount of resources to keep on top of this.

It seams that many people try and secure their surety bond at the last possible minute, it seams that with some much going on, that this is one thing that often slips through the cracks.  When you finally do apply, many become frustrated that the process is not instantaneous.  As explained in our surety bond overview the process can take on average from one to four days. 

Though you may feel helpless, there are some simple steps you can take to help the process:

1. Be sure to respond to your agents question promptly.  If an agent asks for additional information, please sent is ASAP.  And agent will not ask for additional information unless it is absolutely necessary for your approval.  Your application can not/will not be approved with out it.
2. When applying, please make sure you fill the application out in full, and that the information is accurate.  Missing information, or unclear information, will cause an agent to contact you for clarification.  Misinformation can lead to even larger issues, and blatant lies can result in fraud charges.  All of these issues slow the process and can ultimately lead to you being declined.  Please take your time, and double check the information you provide before submitting your application.
3. If you have been bonded before (or declined bonding) let your agent know this information.  The bonding industry is small.  This information can speed the process by allowing us to apply to the proper market first.
4. Overnight shipping is available.  Spend the extra money, and avoid mail delays.

We understand that many of these tips are common sense, but with so much going on, sometimes things are overlooked.  Bryant Surety Bonds will always do its part to get you approved in a timely manner; these small steps are a way that you can assist us in that goal.