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Need a Commercial Bond – Tips to Consider

There are number of surety bonds produced for commercial security requirements (anything other than construction projects). These bonds may be requested by federal and/or provincial courts, government bodies, financial institutions, and private corporations to protect against financial risk and guarantee that the business or individual will comply with all required legal obligations.

In brief, commercial surety bonds protect against fraud, misrepresentation, and compensation of monetary loss. Some of the more common examples include, but are not limited to:

  • Court bonds:
    • Administration
    • Committee
    • Executor
    • Foreign Executor
    • Guardianship
    • Trustee in Bankruptcy

  • Customs bonds:
    • Bonded Carrier Operations
    • Customs Bonded Warehouse Bond
    • Customs Brokers License Bond
    • Customs Sufferance Warehouse
    • Duty Free Shops
    • Non-Resident GST Bond
    • Release of Goods Bond
    • Temporary Importation

  • License and permit bonds:
    • Collection Agency Bond
    • Consumer Protection Bond
    • Contractor’s License Bond
    • Electrical Contractors
    • Grain Dealer
    • Highway Transportation
    • Motor Vehicle Dealer
    • Private Investigators
    • Road Cut Bonds
    • Other License & Permit Bonds

  • Lost Document Bonds:
    • Fixed Penalty
    • Open Penalty
    • Waiver of Probate

Since most companies that issue surety bonds work through insurance brokers, also called producers; your first step to obtain a commercial surety bond would be to discuss your plans with a broker. You will find that brokers who specialize in surety bonding for commercial security will likely be best qualified to assist you. 

The professional surety broker will guide you through the bonding process and assist you in establishing a business relationship with a surety company.

As to the information that you will need to provide in order to obtain a commercial bond, there is no definitive, one-size-fits-all answer. Since this is a broad category that encompasses many different kinds of bonds, the requirements will differ depending on the class of bond being applied for. As well, each company has its own requirements, preferences, and policies.

The size of the bond may also determine the extent of a surety’s due diligence and the nature of the surety’s underwriting requirements. For bonds of a nominal dollar amount, a surety may be prepared to accept the risk with a minimum of underwriting information. Your broker should be able to guide you through the application process.

From a general perspective, even though most surety companies are also large insurance companies, qualifying for bonds is more like obtaining bank credit than purchasing insurance. Like your bank, a surety company wants to know you well before committing its assets.

Most individuals or businesses will be required to spend some time and effort to establishing a relationship with a surety company. Since the surety is guaranteeing your performance (i.e. guardianship bond) or providing security (i.e. customs bond), it needs to gather and carefully analyze information about you or your firm before it will agree to provide bonds.

The surety underwriting process is focused on prequalification which can take time to develop and present key background details, address questions the surety may have, and to verify information.

Each commercial surety bond has its very own specific requirements for providing background details and information, which would be cumbersome to list here. It is important, however, that some may require background and/or reference checks, financial statements, and/or documentation regarding the request for bonding.

A couple of tips to consider:

  • Provide as much information and background details to a broker as you can so that they can present your case to a surety such as: court documents, government letters, financial records, etc.
  • Open communication is vital with both a broker and a surety -- keep them updated and informed of any changes or new developments pertaining to the bond request.

To reinforce any obligation, you will be asked by the underwriter to sign an indemnity agreement. This indemnity will be required of an individual or firm and may also be required of the firm's owners and their spouses.

The indemnity agreement obligates the indemnitors to protect the surety from any loss or expense, thus assuring that they will stand fast in the face of problems and use their talents and financial resources to resolve any difficulties that may arise with the bonded obligation.

Again, the surety prequalification process is very thorough, hence, it is very important to connect with a professional surety broker to guide you through this process.

CLICK HERE to access our on-line directory of member brokers who specialize in surety bonds and who can provide you with support and direction.