Surety bonds cost

Surety bonds are a financial guarantee that your customer will receive financial reimbursement if your business fails to fulfill your contractual obligations.

The cost of a surety bond varies widely, based on the bond claim amount and the scope of your business and your business liabilities. Your premium rate can range anywhere from 1% to 15% of the total bond amount.

For example, a company that takes out a $100,000 bond could pay anywhere from $1,000 (1%) to $15,000 (15%), depending on a variety of factors. A company with a $50,000 bond could pay up to $7,500 for their bond, but may pay as little as $500.

Clients (also called the obligee) may require proof of a surety bond before signing a contract with your small business. It also may be required by state law or to obtain a license.

The price of a surety bond is a set percent of the bond amount. However, several additional factors will also affect how much you'll pay.

When considering your bond application, your insurance provider will look at:

• Financial history and credit score
• Bond size
• Business size
• Industry risks
• Years of experience
• Claims history
• State laws
• Bond type

A surety bond is more similar to a line of credit than an insurance policy. The money must be paid back if you use it. That's why your personal credit score and financial history are important.

As part of the bonding process, the surety company's underwriters will look at the applicant's credit score and financial strength to determine their premium rate. A bad credit rating will increase the amount you pay. Most bonds cost between 1% and 3.5% of the total bond amount, depending on your credit status.

If you have poor credit, you can probably still get a bond, however, you will have a higher premium rate than those with good credit. Having a strong credit score helps keep costs low, as it shows the surety bond company they can count on you to pay back the amount if needed.

The only exception is a fidelity bond, which does not require the business owner to repay the bonding company. This specific type of surety bond resembles a standard commercial insurance policy.

In general, the premium you pay for any commercial bond primarily depends on the amount of the bond.

For example, a bonding company might decide to charge you a 1% surety bond premium. That means a $2,000 bond would cost $20, and a $10,000 bond would cost $100.

This table outlines what a business owner would likely pay for a 1% bond premium based on the bond amount:

Larger businesses with more employees, revenue, and assets often pay more for surety bonds than smaller businesses. This is typically because underwriters assume that larger businesses equate to more opportunities for errors and potential claims.

For example, a large wholesaler with many warehouses and vehicles is likely going to pay more for insurance than a small, single-building storefront.

A business’s industry and the type of bond, such as construction bonds or contractor license bonds, can impact the overall bond price.

Higher-risk businesses, such as construction companies, may have to pay a higher percentage of the surety bond amount (for example, 10% or more) as a premium. Surety bond rates for a lower-risk business could be as little as 1% of the bond's value.

In addition to paying a higher rate, some professions, such as auto dealers, also need bigger bonds because of their profession's sizeable risks. This is often dependent on your state. For example, California requires a motor vehicle dealer bond of $50,000.

The longer you and your business have been in operation, the lower your surety bond premiums are likely to be. Businesses with a strong history of business operations and expertise are likely going to pay lower premiums than newer businesses with less experienced employees.

For example, a business that has been in operation for two years is likely to pay more for a surety bond than a business that has been operating for decades. Bond providers assume that newer businesses are riskier in general and more likely to make a claim on their bond.

Your previous insurance claims can impact your surety bond costs. Surety providers often view prior claims as predictors of future claims.

To ensure your business is offered lower premiums in the future, do your best to minimize incidents that can lead to insurance claims. Employee training, proper safety precautions, and diligent risk avoidance can all help keep claims to a minimum.

In addition to mandating the size of some bonds, state laws also set the cost of bonds for certain professions, such as notary bond costs.

For example, Florida state law requires a four-year bond of $7,500 for notaries public at a cost of $69. Wisconsin state requires a four-year $500 notary bond at a cost of $20.

Another example, California and Florida require general contractors to carry a surety bond in order to operate, while only certain construction professionals in Illinois are required to be bonded.

Common types of surety bonds include fidelity bonds, janitorial bonds, performance bonds, and court bonds.

Auto dealer bonds may be required to operate in your state. They serve as a financial guarantee that a dealership will conduct its business in a lawful manner.

The type of bond you'll need will depend on your industry and the types of work your business performs.

Even within your profession, you may see different types of surety bonds, which may have different bond requirements and costs. Other types of bonds include:

• License bonds and permit bonds
• Bid bonds for bidding on construction projects
• Payment bonds that guarantee payment for all involved parties
• Contract bonds for fulfilling the terms of a contract

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By completing Insureon’s easy online application today, you can compare free quotes for surety bonds and other types of insurance from top-rated U.S. carriers. Insureon insurance agents are available to help answer any questions about the underwriting process and your business needs.

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