What is a Corporate Surety Bond
You may have heard pf the term corporate bond, but it is a very different concept from a corporate surety bond. A corporate bond is a type of bond that is created (or issued) by a corporation or business, in order to raise capital for a number of reasons. M&A, business expansion, and adding to the general operating capital for the organization are just a few of the main reasons.
So, ‘what is a corporate surety bond?’ In short, it’s another word for “surety bond.” Some people just happen to add the extra word, when it is not needed.
How they work
The main thing to understand about these bonds is that they protect the customer rather than the purchaser of the bond. For instance, in a contractor bond, a general contractor might purchase a bond, but he/she does not actually receive any form of protection from that bond. Instead, the customer, or construction project manager/owner receives the protection, in case the contractor fails to live up to the terms of performance specified in the bond.
There is a third party in all contractual agreements as well, and that is the surety company. A surety company is for the most part, an insurance company which also sells these bonds to clients. The involvement of the company doesn’t end with the sale of a bond to the contractor however, because the surety must also be prepared to pay any claims made against that bond, should the contractor fail to live up to his/her obligations.
This same model is typical of almost all surety agreements – there will always be a principal (the contractor), an obligee (the protected party), and a surety (the insurance company) involved in the three-way contractual agreement which constitutes a bond arrangement. It is definitely advantageous for a principal to purchase a bond, even though he/she receives no actual protection from the bond. In some cases, it’s actually required of a principal to have such a bond, before being considered for hiring. This is very common in the construction industry for example, and it happens often that only contractors who have purchased a bond will be considered as potential candidates for receiving the work.
The bottom line on bonds is that they provide a guarantee of performance or the assurance that the principal will live up to the terms of an agreement between the principal and the obligee, and it thus protects the obligee against financial loss in the event that the principal defaults on those terms. All three parties associated with the purchase of a bond will thus gain some kind of benefit: the principal receives hiring consideration, the obligee is protected against financial loss, and the surety earns a profit by the sale of the bond.
Surety by NFP wants to be your go-to bonding solution. If you have any questions about costs or how the process works, we are always glad to help. Learn more about what is a performance bond from our dedicated page.
How to Obtain a Bond
The first step in obtaining a bond is making sure you have financial statements prepared for a surety company to review. This will be necessary to determine your credit-worthiness, and to establish that your company is responsible and reliable. It will help if you’ve been in business for several years, and that you have a good credit score, so as to demonstrate financial stability.
Next, you’ll need to find a surety company that will issue a bond to your company. While there are many such companies, you’ll have to find one which is authorized to sell bonds in your state, and also sells the type of bond you need. You may want to check on the surety company’s business rating, its pricing for bonds, and the turnaround time it requires for bond issuance. Ours is exceptional, and we’re waiting to assist.
Having found the right surety, you can then apply for a bond by filling out the required form and submitting it to the bonding company. If it approves your application, you will receive a copy of an indemnity agreement which specifies exactly what the bonding company will be responsible for, in the event that a claim is made against the bond. You will have to sign this indemnity agreement and return it to the company before a bond can be issued.
After signing the indemnity agreement, you will have to pay for the bond, in an arrangement you make with the surety company. When the bond is actually issued, you will have to sign it also, because it is a legally binding contract between yourself, the surety company, and a third party referred to as the obligee, who is the customer that will be using your professional services. Most bonds are renewable annually, which means that to maintain the coverage provided by the bond, you would be obliged to pay an annual premium to the company to keep it in effect.
The quickest way to bet your bond, is to simply reach out to us. Either fill out the online application, or pick up the phone and call us. 855-999-7833 is the number. We’ll ask you a few questions, and get the ball rolling today. Some bonds can be finalized in-house to save you time and money. Surety by NFP for all your surety needs! From NVOCC bonds to lost instrument surety bonds, we can write them all!