To run a successful business, it's vital for customers to know that they can count on you to fulfill your end of the deal. If you can't uphold your end of the transaction, purchasing a surety bond provides financial protection to your customers. In fact, some projects, like those commissioned by local or state governments, may require the purchase of a surety bond in order to even submit a bid for the project. Here are a few things you should do when applying for these surety bonds; following these tips will help procure approval for the bond and achieve an affordable premium price.
1. Make Sure That Your Credit History Is Solid
Even though surety bonds are issued for business purposes, a specific individual has to apply for the bond (such as the named auto dealer or the contractor who is running the project). One of the factors that the company who issues the surety bond will examine is your personal credit history. Take the necessary steps to strengthen your credit history before applying for the bond.
Ideally, you should consistently work to maintain good credit by making your payments on time, utilizing a variety of different types of debt, and checking that you don't max out your revolving credit lines. If your credit history contains harmful, erroneous, or outdated information, getting it removed or corrected is a simple way to boost your score.
2. Check That You're Applying for the Appropriate Type of Bond
The term surety bond is a blanket term that refers to multiple types of bonds within this category. You need to check that you're applying for the appropriate type of bond; otherwise, you will waste time and potentially lose a profitable project. Bonds may differ depending on your industry, and there are industry-specific bonds.
For example, if you do construction work, some of the available surety bonds include bid bonds, performance bonds, and maintenance bonds. Each bond protects a different portion of the project. You may need to apply for one or multiple bonds in order to submit your project bid.
3. Understand the Requirements for the Bond
Once you know what bonds you need to apply for, you can understand the unique requirements for each bond type. Some bonds require you to have working capital that is equivalent to a specific percentage of the bond amount. Other bonds calculate how much they will pay out by looking at your company's equity. Understanding the specifics of each bond will assist you with properly preparing your business for the bond application process.
Contact a bond provider like NFP, P & C, Inc. for more information.