How to Secure A Surety Bond

A Surety bond guarantees payment or completion of a task by the holder. It is a legally binding contract between three parties:
• The Principal: The party that purchases the bond.
• The Obligee: The party who requires the Principal to obtain a bond.
• The Surety: The party that guarantees payment in case the Principal defaults.

All bonds are minimally securitized with an agreement of the Principal’s indemnity. Sureties companies will require a pledge a collateral in addition to the Principal’s indemnity in order to secure more hazardous Surety bonds. A Surety may make an exception in case of high-net-worth individuals or organizations with strong financial health.

Which Assets Can Be Used to Secure a Surety Bond?

Sureties use different methods to evaluate assets and decide if they’re acceptable. Some Sureties may accept publicly traded securities or real property as bond collateral, while others may prefer certificates of deposits. Most Sureties will accept cash deposits or Irrevocable Letters of Credit

Assets whose values fluctuate or depreciate over time aren’t acceptable. Common examples include cars and capital equipment. Some bonding companies may even refuse to accept real estate as collateral depending on the underlying mortgage and market conditions.

A California probate bond does not necessitate collateral. A Surety company will underwrite the bond based on the Principal’s credit report, financial condition and expected inheritance status.

Once all the parties understand their roles and responsibilities, a contract is written as an indemnity agreement. Some sureties write a general agreement for all bonds, while others write a different indemnity agreement for every bond. Once signed by all parties, the contract becomes legally binding and all parties are obliged to adhere to the terms of the contract.

By signing the contract, the Surety promises to compensate the Obligee for any losses that occur due to the Principal’s inability to fulfill their obligations. The Principal agrees to compensate the Surety once the claim is paid in full.

How to Obtain a Surety Bond?

1. First and foremost, decide the type of Surety bond you need. Consult your attorney, CPA or agency requiring the bond. Find out which type of bonds your competitors are using. Weigh the pros and cons of different types of Surety bonds.

2. Choose a bonding agent that deserves your trust. When assessing a provider, conduct online research to check their reputation and talk to agent references. Ask them about their experience working with the professional.

3. Apply for a bond by filling out the form provided by the Surety. Once you have filled out a form, check the information provided by you to make sure that it is accurate. Surety bonds are rejected due to various reasons such as erroneous info. Steer clear of these mistakes.

H.M. Vreeland is a leading bonding company serving the state of California. We help businesses make an informed decision when choosing a Surety bond. To learn more, call (415) 566-3401.