What to do Before Applying for a Surety Bond

 

For many surety bond applicants, time is of the essence. Whether to operate their business, submit a bid on a construction project, or claim ownership of their vehicle, your customers have a lot riding on their bonds. However, most first-time surety applicants have little knowledge surrounding what these bonds are and do, often resulting in the application process being unnecessarily prolonged due to a lack of preparedness.

Think of it this way; whenever you file your taxes online, apply for a license, etc., you are prompted with a message reading, “to speed up the process, please have these items ready.” Unfortunately, no such checklist for surety bonds exists…until now. In this article, we provide you with an overview of what items your customers need to obtain some of the most common types of surety bonds, ensuring that from this point forward, they will always be prepared when applying for bonds.

Business License and Permit

There are thousands of business license and permit bonds, each with a unique purpose and underwriting criteria. However, there are specific application requirements that are universal across this bond class, such as:

• Business and personal financial statements. These are generally required for high-limit bonds (think $50,000 or more) and can be prepared by your customer.
• Information on your customer’s business, such as the ownership structure, location, and in some cases, a copy of its operating agreement or articles of incorporation

Most business license and permit bonds are pretty cut and dry. Underwriters will conduct a soft credit check on your customer, determine their years of business experience, and issue a quote based on this information. The quoting process gets more complex for bonds with a historically high rate of claims or higher limits. For these types of bonds, ensure your customers have copies of their business and personal financial statements so they can quickly receive a quote.

Contract

The underwriting requirements for contract bonds can be complex. However, your customers can speed up the quoting process by having the following items prepared before applying:

• Both business and personal financial statements are required for bonds with a limit of $500,000 or higher. Your customers may prepare these themselves; however, a CPA will generally need to prepare business financial statements for bonds larger than $2 million.
• Detailed information on the project, including its:
  • Length
  • Cost
  • Source of funding
• Evidence to verify past business experience, including copies of past contracts, a list of completed projects (specifying their length and cost), etc.
• The business’s operating agreement or articles of incorporation
• Bank reference letters
• Work in progress schedules outlying the project’s timeline

Depending on your customer’s specific bond, they may be required to submit all or some of the above items. Even if your customers are exempt from some of these requirements, it can’t hurt to have them prepared anyway and will most likely result in them being more organized for their upcoming projects.

Lost Title Bonds

If your customer lost, damaged, or never received a title to their vehicle, they may need to purchase a lost title bond. Advise your customers to secure the following items before submitting a bond application:

• Written correspondence from the obligee verifying that your customer needs a bond to obtain a title
• The required bond amount (will be based on the appraised value of their vehicle)

The most common issue with lost title bond applications is that individuals will attempt to apply for a bond before receiving confirmation from the obligee. Surety companies will not issue these bonds unless they know for a fact that your customers need them.

Probate

There are four different types of probate bonds: administrator, executor, guardianship, and conservatorship. Before submitting a probate bond application, your customers should prepare the following items:

• All relevant court documents, including proof your customer is an appointed fiduciary
• A copy of the deceased’s will (for executor bonds)
• Complete list of the estate’s assets (for administrator and executor bonds)
• Medical documentation attesting to the ward’s health (for guardianship bonds)
• Documents detailing the minor or incompetent person’s assets (for conservatorship bonds)

Individuals will frequently underestimate the value of the estate or purchase a bond in what they think is the minimum required amount, only to realize later their bond’s limit is too low. This can result in several negative consequences, including having to navigate the process of increasing the bond’s limit, which requires a court order. Additionally, your customer may not even qualify for the higher limit bond, rendering the one they already paid for useless.

The bottom line is that your customers must ensure the bond amount is accurate before applying.

What Else Should Your Customers do Before Submitting a Surety Bond Application?

As a general rule of thumb, your customers should touch base with the obligee before applying for a surety bond. Many obligees have specific requirements that must be met. Your customers can better understand these requirements by directly conversing with the individual or entity requiring them to purchase a bond.

At BondExchange, we pride ourselves on our expert-level knowledge of the surety industry. Our dedicated team of underwriters is more than happy to assist you and your customers during the quoting and issuing process. Simply give us a call at (800) 438-1162 or utilize the chat feature located in the bottom right-hand corner of your screen to speak with a representative, and let us help make surety bonds easy for you and your customers.