Accenda Insurance can assist with a myriad of surety solutions for our business clients. We work directly with bonding companies and have formed strategic alliances with bonding firms for more specialized bonding needs.
For those less familiar with bonding, a surety bond is a promise to be responsible for the debt, default, or failure of another. In some cases bonds are required by federal, state, and local governments to protect the taxpayer dollars that are paying for the project. Other times bonding is required by individuals or private organizations.
There are three parties involved in a surety bond:
Principal – the party required to provide the bond. There are financial requirements for bonds not unlike bank lending. The principal may be required to provide cash collateral or an irrevocable letter of credit (ILOC) if the financials of the principal are deemed insufficient.
Obligee – the entity or individual requiring the bond. The bond is in place for the protection of the oblige, not the principal.
Surety – the financial institution writing the bond. The surety guarantees the performance of the principal. They typically underwrite to a near $0 risk. The better your credit and higher your liquid assets, the lower your bonding rate. If a surety is required to pay all or a portion of the bonding amount they will ultimately be reimbursed by the Principal.
Using a construction development project as an example, the project owner would be the obligee, the bonding company would be the surety, and the general contractor would be the principal. If the principal cannot complete the project and fulfill both the project obligations and financial obligations the surety must step in and see the project is completed, and that all bills are paid. Unlike insurance, the General Contractor is still financially responsible for the costs.
Common types of bonds include:
Accenda can assist with ideas to help increase your bonding capacity and help to lower your bond rate saving both money and freeing up capital for other important uses.