4 Things You Will Need Before Applying for a Surety Bond
Information You Need Before Applying for a Surety Bond
Construction and commercial bonds are the two primary types of surety bonds in the industry. To get construction bonds, you need 4 of these documents before you start your application.
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What is Commercial Bond?
A commercial bond, sometimes known as a business bond, is a type of bond protecting enterprises and businesses. It is generally required by law for a certain industry, providing a guarantee on the aspect of a business principal's occupation. Applying these surety bonds is straightforward. It only needs an application form, government ID to verify, business registration, and sometimes, financial statements like balance sheets are sufficient.
When is Commercial Surety Bond Needed?
It is clear and concise that there are several surety bonds. Also, it is integral to understand that Canadian projects differ and are unique in their way. Therefore, you need also to understand that not all surety bonds will work for you or your company. This demands you to remain at par with various surety bonds and their purposes. For instance, if you have a company, you will often deal with license, contractor, and court bonds. These three bonds are very integral if you want to have a successful business.
Sample of commercial bonds?
License and Permit: The license bond is also called the permit bond. This type of bond needs to be acquired by business owners and consumers to ensure businesses adhere to laid-down rules and regulations. The license and permit bonds will protect the general public and industries from potential damages. Specific rules are made to determine whether one qualifies for these types of bonds. Some governmental agencies cannot be licensed or receiving payments until bonds are in place.
Auto Dealers: Automobile dealers are examples of groups that need a bond in place. It would be best to analyze the Canadian laws to determine whether you qualify for a bond. Before starting serving the public, it would be best to apply for this bond to avoid fines for defying certain laws. Such bond intends to provide consumer protection against instances of misconduct or fraud.
Freight Brokers: Known as BMC-84, and needed by Federal Motor Carrier Safety Administration (FMCSA) to protect cross border motor carriers hired by a licensed broker. The motor carrier's payment is protected for jobs completed for the broker.
Notary Public: An added security for the public if the notary public commits fraud or misconduct resulting in a customer's financial loss.
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A construction bond is a surety bond often used in construction projects by investors.
There are three parties involved in a contract surety bond: the investor, surety company, and the party given the project. There are also different contract surety bonds, including:
The bid bond is a type of construction bond used in the construction bidding process to protect the owner or developer. The bidder guarantees the project owner that they will be compensated if the bidder fails to honour its bid terms.
A performance bond, commonly also known as a contract bond, is a surety bond to guarantee a contractor's satisfactory completion of the project. The term signifies a security deposit of 'good faith cash' meant to secure a futures contract, commonly referred to as 'margin.'
Labour and materials payment bond
The Labour and Material Payment Bond is used to ensure that subcontractors and suppliers will get pay for the Work and material they supply on the job. Project owners often require General Contractors to post Labour and Material bonds at a value equal to 50% of the contract price on large projects. The bonds stand as security for the benefit of all subcontractors and suppliers who have direct contracts with the General Contractor and are often set up together in conjunction with performance bonds.
Site improvement bond
A site improvement bond works as a type of protection when making improvements to an existing structure by the contractor. This bond is to guarantee a contractor's satisfactory completion of the project as originally agreed.
A sample of how the bond is being used. The owner of a building hires a roofing contractor to install a new roof on the older building. The property owner would require the roofing contractor to purchase a site improvement bond to protect their financial interest.
Surety's Consent to agreement
Surety's Consent refers to a construction bond primarily utilized in the construction industry. The bonds' objective is to protect the owner of the project from financial loss. These bonds are necessary for Obligees (owners). Without these, the owner is vulnerable to financial risk if the project failed to deliver due to the contractor's inability to fulfill the obligation. It is to be considered investment protection.
Often the bonds have been referred to as insurance, but it does not function in that manner. It is a legal commitment that does not hold the general contractor responsible for financial loss and costs in the construction project when acquiring the bond. They are essentially providing the Surety.
The process of dividing a property land into two or more legal lots is known as Subdivision. When required to have a subdivision bond, it is more like a contract performance bond wrap with a developer bond, land improvement bond, plat bond, site improvement bond, performance bond, and completion bond. The Subdivision bonds provide a guarantee that will make improvements to land within a subdivision.
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What is needed when applying for a construction bid bond?
Should a company request for a general construction contractor to purchase any of the above bonds for added security, the following documents are required to analyze the risk and process the bond application properly.
- Personal Net worth statement (balance sheet, investments, details of real estate),
- Major projects info., previous largest job info., Work in process reports,
- Key personnel,
- Associated companies(also require their financial statements)
Will the principal always be granted the Surety?
No. Surety works like an application for a bank loan, and Principals must show they have a good reputation before they are granted a bond guarantee. Surety companies require principals to show they can carry out the contractual obligations, including having the equipment, experience, and financial resources.
Benefits of surety bonds
Surety bonds are the "cost-effective" way to finance contract security obligations. It provides a guarantee without needing more cash flow to win new contracts and leaves more room for additional contracts requiring it. It has a cost advantage for more business in comparison to getting a bank loan.
4 Things You Will Need Before Applying for a Surety Bond. Get them, and you will be rewarded. Call and discuss with us in detail how securing these facilities will boost new contracts and enhance your reputation. .