If your business needs a surety bond, you may be concerned about how much it will cost. Businesses already have to pay a lot to both start operations and to continue operating. Your business may or may not need a surety bond. Thankfully, even if it does, surety bonds have a one-time payment — not a recurring payment.
Reasons You May Need A Surety Bond
- Licenses. Certain industries require companies to have a license — such as private investigators and mortgage lenders.
- Government Contracts. With industries such as construction, your company will need permission from the government to perform certain construction projects. The government will typically require you to have a surety bond to protect themselves in case something happens to prevent your construction company from completing the contract.
- Court Surety. Some surety bonds can help with the cost of court fees if your company is sued or otherwise needs to defend itself.
- Protection. There are many surety bonds that provide general protection against employee theft, damage and dishonesty.
There are a range of surety bonds that are geared toward specific needs, especially for businesses. Common industries that require surety bonds include travel agencies, construction companies and auto dealers.
How Much Does A Surety Bond Cost?
It is hard to pinpoint the average cost of a surety bond, as it depends on many factors — including the type of bond. Thankfully, the cost of a bond is usually split, so that you aren't required to pay the entire amount. On average, you will instead only pay between 1 percent and 15 percent of the bond. If a surety bond is $15,000 and you are expected to pay 10 percent, you will pay $1,500 of that bond. The type of bond also matters. Bonds usually aren't expensive overall, though some cost more than others. On average, a bid bond costs around $350. This is a one-time payment that doesn't require monthly installments. Other influences on bond prices include the bond amount or value, the risk of the bond and personal characteristics of the person requesting the bond. For example, people with lower credit scores may have to pay higher surety bond rates. The same goes for the risk presented by the bond itself. Construction-related bonds are often considered high-risk.
How Does A Surety Bond Work?
Different surety bonds are handled in different ways. When you purchase a contract surety bond, for example, you must purchase the bond in order to perform certain work, typically on government property. This contract ensures that your company meets the specifications set for the contract and covers the client (and surety) in case you are unable to complete the promised project.
If you need a surety bond, you may purchase it through a surety agency. Agents will be able to help you figure out what type of surety you need and what percentage of the bond you will be responsible for paying.
You may not be able to get a refund on a surety bond, but it is possible. Say you purchase a bond for a license before deciding not to get the license at all. In general, you won't be able to get a refund on the surety bond once it's purchased. Since it's a one-time payment and set for a certain period of time (such as one year), it's rare that refunds are allowed. There are rare incidents where you may receive a refund for having to cancel your surety bond, however. If you wish to cancel your bond, speak with the surety who provided it about bond limits and their refund policy.