Surety bonds are an instrument that businesses and individuals use to guarantee their performance on a contract or agreement, or compliance with a license or other directive. They are often required by law or by the party that is hiring the contractor or service provider. In this blog post, we will provide a step-by-step guide on how to obtain a surety bond.

Step 1: Determine the Type of Bond Required

The first step in obtaining a surety bond is to determine the type of bond required. There are several types of surety bonds, including performance bonds, payment bonds, license and permit bonds, and court bonds. Each type of bond serves a different purpose and has different requirements. You should consult with the party requiring the bond or a surety bond professional to determine the appropriate type of bond.

For example, if you are bidding on a construction project, the type of bond you need will typically be outlined in the proposal documents.

If a court requires a bond, it will be outlined in the court order.

It is important to understand if there is a specific form that the bond is required to be written on, or if a generic bond form is acceptable to the party requiring the bond, commonly referred to as the obligee.

Step 2: Find a Surety Bond Agent

You should consider contacting your insurance agent when you find out that you need a surety bond. Insurance agents often work with multiple surety bond companies and can help you find the best option for your needs. They can also assist you in completing the application and provide guidance throughout the underwriting process. It is important to work with a knowledgeable insurance agent to ensure that you obtain the appropriate surety bond for your situation.

Surety is vastly different from other types of insurance, like property insurance. Often, agents have specializations and may not be familiar with surety bonds. If the bond you need is large or complex, or both, it may be advantageous for you to seek out an agent that specializes in surety bonds. If you don’t have an agent that specializes in surety bonds, Lexington National can facilitate an introduction to an agent in your area or to one who specializes in the type of bond that you need.

Step 3: Complete the Application

The next step is to complete the application for the surety bond. The application will ask for information about your business or personal finances, financial statements, and references. You may also be required to provide information about the project or contract for which the bond is required. The application may also authorize the underwriting company to pull your credit report.

Step 4: Underwriting and Approval

After you have submitted the application, the surety bond company will underwrite the bond. This process involves evaluating your creditworthiness, financial stability, and the risk associated with the bond. The surety bond company may request additional information or documentation during this process. If you are approved for the bond, you will receive a quote for the premium rate.

Step 5: Payment of Premium

If you agree to the premium rate, you will need to pay the premium to the surety bond company. The premium rate is usually a percentage of the total bond amount and varies based on multiple factors including but not limited to: your creditworthiness, the type of bond, and the risk associated with the bond. The premium payment is typically made annually or for the duration of the bond.

Step 6: Bond Issuance

Once you have paid the premium, the surety bond company or your agent will issue the bond. The bond will include the terms and conditions of the bond, the bond amount, and the name of the principal and the obligee. The bond is usually signed by you and then sent to the obligee, who will verify the bond and provide approval for the project, contract, or license.

In conclusion, obtaining a surety bond can be a straightforward process if you follow these steps. It is important to work with a reputable surety bond company and agent, and also provide accurate information during the application process. If you have any questions about the surety bond process, do not hesitate to reach out to us using the contact form below.