While it’s true that surety bonds are not as intimidating – nor as expensive – as they may seem, it can also be safely said that they’re not the easiest things in the world either.
What we meant by that statement is that the same criteria that we often use for buying, let’s say, a bar of chocolate doesn’t necessarily apply to surety bonds.
Mistakes do happen when purchasing a surety bond. But don’t worry, they can easily be avoided.
Our goal is to provide a first-time surety bond buyer informed decisions so that he/she can avoid these common mistakes:
Not knowing which surety bond to buy
There are literally thousands of bonds that are available today, and specific industries or professions would sometimes require different bonds.
Let’s take the case of an electric supplier as an example. In some states, a supplier can also be referred to as a broker or aggregator.
They do vary in terms of the services rendered, but they can all be classified under an umbrella term: supplier.
If a broker is asked to buy a bond, the said person can mistakenly apply for an electric supplier bond rather than an electric broker/aggregator bond.
In order to avoid this mistake, you need to verify the exact type of surety bond that you need from the person requiring the bond.
Wrong bond amount
It’s the duty of the principal to confirm the exact bond amount before applying for a bond.
There’s usually a fixed bond amount that will be provided by a government agency, business entity, or any person requiring the bond.
There are cases, however, wherein the principals have to compute the bond amount themselves based on a given formula.
What will happen if I submit a bond with the wrong amount? The bond will be rejected. So that means, you’d have to go through the steps all over again.
In order to get it right the first time, have the bond amount approved by the person who’s asking you to secure a bond before applying.
Buying a surety bond after a given deadline
Normally, you will be asked to post a surety bond before a license, permit, or certification is issued.
However, there are cases wherein you will be asked to furnish a surety bond after the license, permit, or certification has been issued.
You will be given a timeframe in which to submit it. If you fail to do so, the license, permit, or certification will most often not be canceled.
The same is true for court bonds. The appellant, for example, will be given a number of days in which to file a supersedeas bond by the trial judge. The appellant should then meet the filing deadline in order to avoid judgment.
The best solution is to apply for a surety bond as soon as you are asked to do so.
The underwriting process varies per bond and applicant. Some may take longer than others. If you delay your bond application, there’s a chance that you will fail to submit it on the provided posting date.
Seeking the help of a delinquent surety
It’s not uncommon for a first-time surety bond buyer to be victimized by delinquent sureties. The outcome is a painful lesson for a principal whose main goal is to simply conduct his or her business in a responsible manner.
A reputable surety will help principals attain their goals by executing bonds that will provide the required risk coverage as well as help them honor their lawful obligations.
Before ticking off the surety bond requirement on your list, verify the legitimacy of the surety that will issue your bond first. Here are some of the ways to do it:
- Contact your state insurance commissioner to check if the surety is authorized to conduct business in your state
- Check if the surety is part of a prestigious association such as the National Association of Surety Bond Producers
- Confirm its financial rating from the A.M. Best Company
If you’re a first-time surety bond buyer, we hope that the aforementioned considerations will be of great help.
Please do not hesitate to contact us if you need further assistance.