How the Cost of a Surety Bond Is Determined

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How much does a surety bond cost?

For small businesses, it is important to have a good credit score because that indicates that you have been in business long enough and have paid all your bills on time. Your credit score will factor into the pricing of the surety bond, but it is just one of many factors that will determine how much your surety bond costs.

The type of business you are in also plays a significant role in determining how much your surety bond costs because different types of businesses have different insurance needs. If you own a retail establishment, for example, some level of general commercial liability coverage, like product liability insurance, is required by law. If you are opening a restaurant, for instance, then worker’s compensation and liquor liability insurance may be required depending on the state where your business operates. 

The complexity of your transactions or operations also factors into how much a surety bond will cost because different types of transactions and operations have different insurance needs. For example, a contractor doing renovation work on a federal installation will require a different bond than if the same contractor was only serving as a subcontractor on the project.

The number of states where your company does business also plays into how much your surety bond costs because some states actually charge more to do business in their states. Some states charge applicants an additional fee if they are being bonded as a “foreign” company, which means that your business is located outside of the state where you are applying for surety bond coverage. 

The type of bond you are applying for also plays into how much your surety bond will cost because different bonds have different minimum liability limits. A contractor doing renovation work on a federal installation will require a higher limit than if the same contractor was only subcontracting for another company, for example. 

Is a surety bond expensive?

The short answer is “no,” which is why many small businesses decide to purchase surety bonds. Surety bonds are generally much less expensive than purchasing commercial liability insurance because you will not have to pay an insurer a premium in order for them to assume the risk of your business failing. The insurer’s primary concern during underwriting is whether or not the cost of the bond is worth it for them once they factor in how likely it is that you will fail.

Because most small business owners are at a high risk of failing, however, many insurers will charge an additional fee to ensure that your surety bond is underwritten as a “foreign” company. This means that your business must prove to the insurer why their state premium is not needed. It has nothing to do with where you are located nor does it have anything to do with any extra fees that may be incurred for working in certain states. 

There are many factors that play into how much your surety bond or insurance policy costs because different businesses need different types of coverage. Your credit score, the number of states where you do business, the type of your operation or transaction, and more all play into how much you will pay to purchase surety bond coverage.

Can I get a free estimate for my new business?

When applying for a new surety bond with us, we will provide you with an accurate quote that includes our premium rate. You can then decide whether or not to apply based on that rate. We do not provide free estimates because there are too many factors involved in determining if your company qualifies for coverage under any one bond. 

We also do not charge any fees before issuing policies so there is little reason to provide anyone with an estimated premium rate without getting their personal financial information first. For these reasons, it is best to contact us directly via phone or email so we can provide you with the exact amount of your premium via a quote.

What happens when I don’t have a surety bond in place?

When you need a surety bond, such as if your business is filing for bankruptcy or wants to expand its operation, one of the last things you want to happen is to find out that you will not be able to get bonded. This often means losing clients and shutting down your operation until you can get bonded and resume work. 

If your business fails and does not have a surety bond in place when they should have had one, they will be avoiding liability at all costs while protecting themselves from potential lawsuits. If there does happen to be a lawsuit against them then this could hurt their chances of getting any money out of the bankruptcy proceedings despite how valid their claim may actually be. 

Interested to know more about surety bonds? Check out Alpha Surety Bonds now!


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