Qualify for a Surety Bond
with the Alliant Business Systems
Surety Bond Preparation Services
Surety bond preparation services from Alliant Business Systems can help your small business qualify for a surety bond. Here’s what you need to know about this sometimes frustrating, always vital, and too-often mishandled business tool.
What is a Surety Bond?
A surety bond combines features of credit and insurance. Broadly speaking, it spells out the obligations among three parties: the obligee, whose obligation is to provide a financial guarantee should the second party — the principal — fail to deliver goods or services as promised to the customer.
Bond rates are determined by a number of factors, including personal credit and the degree of risk associated with the business. Better credit and lower risk means that the bond can be secured by a lower percentage of the total, while bad credit or a high-risk industry will incur a higher-percentage fees.
How to Qualify for a Surety Bond
The SBA (Small Business Administration) offers extensive resources on surety bonds, when they’re needed, and how to qualify. As with business loans, the SBA is not an issuer of bonds; they are merely a guarantor. However — again in common with business loans — they are often the destination of choice for small businesses.
The bonds originate with a surety company or agent, each of which will have different underwriting requirements. The SBA distills these requirements down to “three C’s – capital, character and capacity.” This means your working capital, cash flow, ratio of debt to equity, and past performance history will all be placed under a microscope. For the uninitiated, the process can be both frustrating and intimidating, which is why many small businesses enlist the help of Alliant Business Systems.
Although the business capital and surety bond markets have loosened slightly from the levels seen during the recession, qualifying for a bond can still prove difficult. Some businesses even find themselves turned down after qualifying in the past.
Improving Your Chances
Improving your chance at a surety bond depends on understanding the process, or having someone in your corner who does. Raising your credit score is often a good first step. Evaluate your business assets, since dwindling cash deposits may also hurt your chances. Also be aware that bond claims placed against you as a surety bondholder will make future approvals more expensive and difficult.
Other essentials you may need:
- A letter of credit, wherein your bank vouches for your business’s ability to cover your financial obligation under the bond
- A personal promissory, which places personal responsibility upon you to cover the bond in the event that the business has poor financials
- Cash collateral, which may be required as an addition to the bond premium — this is a good faith guarantee that you will back the bond, and will be released to you once the bond obligations are fulfilled
Surety bond approval can be as frustrating as it is time-consuming and complex. However, if you have not been approved, it’s not time to give up. It’s time to broaden your options and take action. Likewise, you should not avoid existing bond obligations, since you may find your business on the wrong end of fines, legal action, and license revocation. If you need help with surety bond preparation or navigating the tangled and confusing web of regulations surrounding them, contact Alliant Business Systems.