The basic Surety bonding requirements
Surety Bonding is a type of insurance protection that project owners require from contractors. This allows the project owners to gain a level of financial security in the event an unforeseeable situation, damages, or losses occur. Surety Bonding is mostly used for construction companies, but other businesses require these bonds as well. Saying that, getting bonded is not always easy, you as a business owner must meet specific requirements and standards. Today I will talk about Credit score requirements to get surety bonds.
Credit score is dependent on factors such as, whether you have paid yours bills on time, or if you have borrowed any money from credit cards and have not paid them off. Having a bad credit could affect your financials. One of the common things that happen is that you will get denied for credit. Credit is required for mortgage rates and also getting a better insurance and loans from banks. Surety Companies also check your credit score to provide an appropriate surety bond rate. If it’s a poor credit score, it will indicate that you have not been financially stable and that you may be facing financial problems. Poor credit shows the surety company that there could be risk of loss in the future. The Surety company expects a good credit score around 700 and a poor credit score to be around 400. Having poor credit could mean that an individual has to pay more for the bonds than a person with a good credit.
How to Improve your credit score?
- Pay your bills on time
- Pay off any debts you have
- If you don’t have the financial stability, avoid using credit cards because in the end you could be paying more in interest.
A bad credit does not mean it is the end of the world, if you follow the steps above, your credit will improve and in the future you could have better bonding or mortgage rates.
Companies financial is another factor affecting the bonding prices because if you don’t have enough money to purchase the bonds, then you must finance in order to pay for the bonds. People with low credit score have to pay more and because of this reason they might have to resort to low tier financing. Your company’s financials are very important because the surety company doesn’t want to give bonds to an individual with bad financials in the fear that they might not be able to pay for the bonds or complete the construction job and also knowing that if the company is struggling or not.
Surety Bonds are obtained through Surety companies like SuretyKings or through direct agents at insurance companies such as Marsh Canada. The brokers and agents must be knowledgeable about the surety and the construction industries. Surety Bond producers work mainly in agencies but are also found working for insurance companies. The surety Bond producers usually maintain a respectable relationship with several surety companies. Having a relationship with surety brokers helps contractor to find a suitable surety bond insurance company which in exchange is best for them. A good surety company and the surety producer will help you maintain and increase the surety capacity while lowering your premiums.
Bonding Capacity is important for contractors as their capacity will determine the projects they could pursue. Bonding capacity is usually based on the amount of cash, assets, experience and personal records of a professional contractor. Bonds are issued by the amount of job per basis and contractor is only allowed contract or a bond up to their surety facility limit. The aggregate is the maximum a contractor can have at any one year. The aggregate consists of all the contracts included bonded and unbounded which indicates the surety company how much work the contractor could take.