Surety Bonds
What You Need to Know About
Surety Bonds
Since 1956, RJ Ahmann Company has served businesses nationwide. RJA is a premier provider of surety bonds.
Does your business need a surety bond?
If you are a contractor working with government entities or large customers, you may be required to provide them with surety bonds. A surety bond is an extension of credit by the bonding company in the form of a guarantee of your obligations. You (the principal) enter into a contract with a city (the obligee), and provide a surety bond that guarantees you will meet your obligations under the contract. There is a side (indemnity) agreement between you and the bonding company that requires you to reimburse them for any loss they experience on your behalf. If you default on your contractual obligations, the surety can either pay damages or complete your contract. A surety bond is often used in lieu of a standby letter of credit from a bank.
Because of the range of businesses who need and use bonds, there are many types of bonds providing a wide scope of guarantees. Performance bonds guarantee that the work will be completed in accordance with the specifications of the contract. Payment bonds guarantee that any bills incurred by the contractor on the project will be paid. Supply bonds are simply performance bonds for supply contracts. In addition, there are various types of financial, license, permit, court and other obligations that can be guaranteed by surety bonds.
Which businesses are required to post surety bonds?
Many private companies and government entities require that you provide a bond before work can be awarded. Also, many professions require the protection of a surety bond to operate legally. Below are a few of examples of those who may be required to have surety bonding:
- Contractors: Need bonds to secure jobs and to qualify for certain levels of licensing.
- Manufacturers: Supply bonds are often needed to secure large contracts to supply goods.
- Legal professionals: Various types of court bonds are commonly required.
- Agricultural businesses: Various types of government bonds are required. For example, a grain elevator is often required to post a grain warehouseman’s bond to provide security to farmers bringing grain to the elevator.
- Any licensed business: Various types of license and permit bonds are required for all types of businesses, from beauty salons to nursing homes.
Why is a surety bond important?
Surety bonds give you the ability to obtain contracts that are not available to companies that cannot provide them. They allow your company to obtain proper state and local business licenses. Not every business qualifies for bonding, so establishing a surety line of credit through a knowledgeable bond agent can provide you with a clear competitive advantage.
How do underwriters decide whether or not to grant you surety credit?
Underwriters typically evaluate a potential bond account in terms of its entire work program, rather than just for a single job. They look at the history of your company, types and sizes of past projects, your financial strength, and the backgrounds of key employees. Having a bond agent who understands your industry and your company, and has the skill to communicate and negotiate on your behalf, is critical to obtaining the bonding support you need.
A smart solution
If you need a surety bond, or if you just want to learn more, RJ Ahmann can help. With more than 52 years in the construction industry, we’ve helped thousands of businesses solve their surety problems. In fact, we supported the growth of one contractor by increasing his single job size from $800,000 to $36 million over a 6-year timeframe. We develop creative solutions for unique situations including construction insurance. We listen to clients and understand the challenges you face. We can help develop a marketing plan to present to the surety industry that will help maximize your surety credit at competitive pricing.
To ensure that you get the strongest insurance protection at the best rates, we...
- Employ many of best bond experts in the region and offer access to most surety markets.
- Understand the construction industry.
- Maintain fast, timely turnarounds on bonds.
- Maintain strong underwriting relationships and negotiate on your behalf to help you get bonds placed.
Ready to learn more? RJ Ahmann is ready to help with solutions for surety bonds!