Unless you’re an expert, what you think you know about surety bonds may not be that accurate. There are a lot of myths and misconceptions out there. However,surety bonds are not nearly as expensive or confusing as many may think. If you are in the market for a surety bond, we want to dispel some of those myths that may trip you up!
Surety Bond Myths: Construction Surety Bonds Are Expensive
One of the biggest misconceptions about construction bonds is that they are too expensive for smaller construction companies to purchase. This isn’t the case.
Initially, construction companies acquiring a bond will only have to pay anywhere between one to three percent of the contract sum. It is important also to note that oftentimes the owner of the project will reimburse the bond price to the contractor at some point after the first payment has been made.
Surety bonds should be looked at as a way of protection, not as something that will negatively affect either you or your business if everything is done according to the original contract.
Surety Bond Myths: Surety Bonds and Insurance Are The Same Things
Although one of the biggest beliefs regarding surety bonds is that they offer the same purpose as insurance, this could not be further from the truth.
Surety bonds are meant to protect the party that is requiring the bond. This does not hold true for the bond purchaser.
So if surety bonds are not the same as insurance, what do they offer and what do they entail?
Surety bonds differ from insurance for a variety of reasons such as the risks involved, payment rates, and more.
Unlike insurance that involves two-party risk transfers, surety bonds are comprised of three separate parties: the Obligee (the person or party protected by the bond,) the Principal (the person or party required to have the bond,) and lastly the bond company involved.
Surety Bond Myths: Surety Bonds are Required to be Paid In Full
Surety bonds do not need to be paid monthly nor do they need to be paid completely upfront. For example, if you have a $50,000 surety bond, you will not need to pay the exact $50,000 to secure the bond. Often, only a small amount of the bond will need to be paid, sometimes as little as one percent.
Surety Bond Myths: All Surety Bond Companies Off the Same Services At The Same Rates
With the vast array of surety bonds on the market, it is safe to assume there are plenty of Surety Bond companies that offer the same services. Despite the high demand for niche markets requiring bonds, not every company is the same.
It is important to do your research on surety bond companies in regards to what rates are charged and if there are any additional fees to be disclosed from the beginning.
At Surety Bond Authority, we pride our name on great customer service and integrity. Contact us today for great rates on surety bonds or simply would like to know more about surety bond options.