We’ve been simplifying the surety bond process each year as part of our commitment to provide our clients with the best possible surety bond experience.
While it’s true that you can now obtain a surety bond faster than before, the surety bond application process is still a complex task that requires painstaking work…on our end, at least.
Surety bond clients will rarely see what goes on after we received an application.
But since we believe in transparency, we will show you how the surety bond process works from start to finish.
Collecting Information from the Applicant
Basic information will first be collected. Some of these are as follows:
- The legal full name of the Principal and the Obligee
- The current mailing address of the Principal and the Obligee
- The bond form—most bond forms can be downloaded online, but some will be given by the Obligee
- A description of the bond’s obligations
- The exact bond amount—this must be determined by the Obligee
- The effective date of the bond or the start of the coverage
The initial decision of the underwriter as to whether or not to write the bond will be based on the information above.
If the underwriter decides to write the bond, the underwriter will require additional information from the surety bond applicant (Principal).
The information that will be required of the applicant will be a case-by-case basis. Some bonds require fewer documents while others require more.
We’ve listed the basic additional information that the applicant must provide the underwriter below:
- The Principal’s financial statements
- The Principal’s credit reports
- A copy of the underlying agreement
- A signed application
- A signed indemnity agreement
Verifying the Information
The surety will further check the information provided by the applicant in order to understand the obligations.
Here are some of the documents that the surety will thoroughly look at:
- Underlying agreement
In order to understand the degree of risk being guaranteed by the bond, the surety will check all the terms and conditions of the underlying agreement between the Principal and the Obligee (party requiring the bond). The underlying agreement includes terms and conditions of the bond form that will be in favor of the Obligee. An Obligee can be a government agency or a business entity (private commercial agreements). Every relevant statute, regulation, ordinance, and policies—in the case of private commercial agreements—will be checked. The underwriter will also check if there are high-risk clauses. - Financial and Credit Statements Not all surety bond applicants will be asked to submit financial and credit statements. Most of the time, these will be required based on the following reasons:
- The bond amount/penalty is big
- The risk is high
Underwriters require that a licensed CPA must prepare the corporate statements that will be submitted.
Indemnity of the Principal
The surety will secure the application before a bond is issued by asking the Principal to sign an individual application or a general indemnity agreement.
- Individual Application – this will be for Principals with minimal surety bond needs.
- General Indemnity Agreement – these are primarily for Principals who require multiple bond needs over a certain period. This type of agreement applies to the following as well:
- If there are multiple indemnitors—persons who sign an indemnity agreement
- If the bonds’ aggregate liability is large
- If the bonds’ guarantee obligations of varying degrees of risk
- If the surety required a collateral
Conclusion
The “behind the scenes” of a surety bond application is complex. But that’s all part of the nature of suretyship.
Meticulous assessment, critical thinking, and extensive knowledge are required to provide our clients with an excellent risk-transfer mechanism product that they can depend on.
If you need a surety bond ASAP, just simply APPLY FOR ONE HERE. We’ll take care of the rest.
