Surety Bond Premium Financing
The surety bond premium is the amount of money that is paid to a surety company in order for the surety company to provide a surety bond guarantee. The premium is often called the rate. The rate that is paid for a bond can range from lower than 1% up to 15% or more of the total bond amount. In some cases, depending on the bond amount and risk associated with the Principal (person or business purchasing the bond), this can be a large sum of money. Sureties require this premium payment upfront before a bond can be issued.
It may be difficult for some businesses, especially new businesses or individuals with bad credit (subprime credit often leads to higher premiums), to cover this added expense in one payment, at The ProSure Group we understand that. We know small businesses need cash to run their operations, that’s why we have unique partnerships with multiple finance companies that provide surety bond payment plans. Due to our extensive experience in the industry and unparalleled relationships with more than 30 of the largest surety companies, we are able to offer the most competitive rates available on the market. Sometimes the most competitive rates are not the lowest rates, which leads to a need for payment plans.
How is a surety bond premium calculated?
Surety bond premiums are calculated using multiple risk factors. One of the most important factors used in calculating a bond rate is the applicant's personal credit score. Credit scores alone are used by sureties to determine rates for the majority of the license and permit bonds they issue. The higher the credit score the lower the rate (700+ FICO scores often generate 1% or lower premiums). Premium financing is an excellent option for new businesses or for customers with bad credit to acquire bonding and be able to make low monthly payments!
The next biggest factor used to determine a bond rate is the type of bond being issued. Some bonds are inherently riskier than others and will sometimes generate a higher rate due to that additional risk. For example, motor vehicle dealer bonds and utility deposit bonds are considered to be much riskier than contractor license bonds due to the higher likelihood of claims and defaults.
Other risk factors include business/industry experience, the bond amount (amounts greater than $50,000 usually require more information than just a credit check), the length of term of the bond coverage, and in certain circumstances, the personal and/or financial standing of the applicant and their company.
Applicants that are new to their industry or those starting a new business may be deemed riskier than established businesses and may yield a higher rate, even if the applicant has excellent credit. No worries! The ProSure Group has the experience and relationships to place even the most difficult of bonds, no matter the size of the bond or the state where the business is located.
How much does surety bond premium financing cost?
Premium financing is available for most premiums starting at a minimum of $1,000. Each finance company handles payment plans differently depending on the bond type, bond amount, and bond duration. A down payment will always be required upfront and may consist of 1 or 2 monthly payments, or a certain percentage of the bond starting at 10% all the way up to 40%. The remaining amount is then charged monthly, with interest, for anywhere between 3 to 4 months up to 12 months, again depending on the bond type, bond amount, and bond duration. The interest rate charged per month can range from anywhere between 10% and 20%. When applying for a bond ask our surety specialist if a payment plan is available.
What surety bonds are eligible for payment plans?
Premium financing is not available for all surety bonds. A good rule of thumb is financing is only available on cancelable bonds (if you’re not sure, call a specialist at The ProSure Group). Cancelable bonds include most license bonds and permit bonds. Contract bonds, construction bonds, court bonds, and fidelity bonds do not qualify for premium financing.
It is important to make all of the premium payments on time, as a late payment could cause the finance company to notify the surety company, whom will cancel the bond and therefore nullify your license or permit.