Overview of Brewers Bond Requirements
The brewers bond is an umbrella term for two different but related types of surety bonds.
The federal Alcohol and Tobacco Tax and Trade Bureau (TTB) will require you to post this bond when applying for a Brewer's Notice. This is why this bond is sometimes also referred to as a TTB bond, and it guarantees that you will pay an excise tax to the Bureau.
If your excise tax is less than $50,000, the amount of the bond you need to post to the Bureau is $1,000. For excise tax higher than $50,000, your bond amount will also increase. See 27 Code of Federal Regulations (CFR) Part 25 for a detailed description of the required bond amount.
In addition to this, to open your brewery, you will likely need to get a brewer's license from your state government. Typically, the licensing process also involves posting a brewer's bond as a guarantee that you will pay taxes in the state.
The majority of states currently require brewers to post a surety bond when opening a brewery. The amount of this bond varies depending on state laws. Ask your local licensing agency for more information about the bond you must post.
Why do I need a brewers bond?
Both the TTB and the state brewers bond guarantee that the licensee will pay all required taxes and any other payments due to either the federal or state government.
If the brewer fails to comply with the requirements to pay taxes, the government may bring an action against their bond in order to secure the money owed.
In this situation, the surety that backs the bond may extend compensation in order to resolve the claim. The amount of compensation which the surety extends will depend on the amount of losses or damages caused by the brewer. Such compensation may even be as high as the full amount of the bond.
Want to know more about how bonds work, and why businesses need them? See our detailed ‘What is a surety bond' guide to find out more!
To learn more about the cost of your bond, the claims process, and how to apply, see the following sections.
If you have any questions about getting a brewers bond, you can also call us at 866.450.3412 anytime!
How Much Does it Cost to Get a Brewers Bond?
The cost of your surety bond is a percentage of the total amount of your bond. To determine it, the surety looks at the following aspects of your finances.
Factors that determine your bond premium
Personal credit score is the main factor that influences the cost of your bond.
Credit score is commonly taken to be a reliable indicator of the financial strength of bond applicants. The higher their score - the lower their bond rate.
Accordingly, individuals with excellent credit scores are typically offered a rate from .75% to 1.5% of the total bond amount. Those applicants who have lower scores but which can still be considered good can expect to get bonded at a rate between 1.5% and 5%. Typically, applicants with low or so-called bad scores are offered a rate between 5% and 15%.
Usually, especially for bonds in higher amounts, sureties will also request that applicants provide information about their:
- Personal and business financial statements
- Fixed and liquid assets
- Work experience and record
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How Do Bond Claims Occur?
Every bond agreement is conditioned on the bonded party's compliance with certain obligations and requirements. The brewers bond requires licensees to pay taxes, and comply with any other federal and state regulations that apply to their type of business.
If a brewer fails to pay the required taxes, commits fraud or misrepresentation, a claim can be filed against their bond to remedy the damages caused by their violation.
The surety which has issued a bond on behalf of the brewer must then determine whether and what amount of compensation to extend to satisfy the claim. If the surety extends compensation, the claim is resolved for the claimants (i.e. the bond obligees).
The licensed and bonded brewer (the bond principal) though still has an obligation to repay the surety for the compensation it has provided. Sureties never assume final liability for claims, so all compensation is ultimately paid by the principal.
The safest and easiest way to avoid dealing with bond claims is to understand the conditions of your bond agreement and strictly comply with them. That way, you will only need to pay your initial bond premium, and nothing else.
How Can I Get a Brewers Bond?
Click on the banner below to complete our bond form. We will then contact you with a free quote and exact on your bond, and also provide you with all the details about completing the bonding process.
To consult with one of our bond professionals about getting a TTB bond or brewers bond in your state, call us at 866.450.3412!