Contract bonds are often incorrectly referred to as construction bonds. There are several categories of contract bonds (for example, payment bonds, performance bonds, or subdivision bonds), all of which are three-party agreements between the contract principle, owner as oblige, and the surety.
The Contract bond market is on that written in a very conservative manner. In the late 1990′s, the surety industry as a whole was writing bonds very liberally, accepting those who were under qualified, or with poor credit histories. This period of time hit the bonding companies hard with record loses, forcing several companies to close their doors. At the turn of the century, those surviving companies reevaluated their underwriting practices and “firmed them up”. As a result there are no specialty markets for bad credit contract bonds.
In order to streamline the approval process, contract bonds under $200,000 are approved solely on credit reports of the individual or company.
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