A surety bond is essentially a financial guarantee towards the obligee (the person that owes money or something of value) against some financial damage in case there is a default by the principal (the person that owes money). Several industries use surety bonds, e.g., construction, healthcare, and also as part of government contracting. For more information on how surety bonds can benefit your business, explore Alpha Surety Bonds services.
Most bonds will cost between 1-10% of the full bond amount.
How much does a surety bond cost?
The bond amount is the maximum amount that the surety company is willing to pay in case someone files a claim against it. The cost of the bond-the premium-is usually a percentage of this amount.
The cost of a surety bond depends on many factors.
Among them:-
Type of bond
Bond amount
Credit rating of the principal
Risk assessment of the surety company
Typically, a surety bond is priced at between 0.5% and 10% of the total bond amount. For example, a bond worth $10,000 may cost from $50 to $1,000.
Who determines the price of a surety bond?
Surety companies decide on the premium for the bond based on various calculations to derive the price.
Factors that influence the price of a surety bond are the following:
- Type of Bond – Riskier bonds, such as contract and court bonds, are more expensive.
- Bond Amount – Higher bond amounts will result in higher premiums.
- Credit Score – The lower the credit score, the higher the premium.
- Business Experience & Financial Health – Well-established businesses with strong finances are likely to get lower rates.
- Surety Company Risk Assessment – Risk is assessed differently by the companies; therefore, comparing quotes is good.
Will getting a Bad Credit score hinder the process of obtaining a surety bond? Well, you’ll still be able to get bonded but at a higher premium, and a lot of such types of bonds don’t require a credit check.
Which bonds do not require a credit check?
Many license and permit bonds do not require a credit check and may issue within minutes of completing the application process.
Which bonds are fixed-price bonds?
Some bond types such as title bonds, notary bonds, and many contractor license bonds are fixed-price and do not conduct credit checks.
What are the surety bonds costs across different types?
Here are some standard estimates across different types of bonds.
Commercial bonds: $250-$5,000
License and permit bonds: $100-$2,000
Contract bonds: 1%-3% of contract amount
Court bonds: $100-$500+
Fidelity bonds: 0.5%-1% of coverage amount
The Future of the Surety Bond Market in 2024: What to Expect?
It is expected that the surety bond market will continue to stabilize during 2024 with growth rates expected to be very modest. Hence, bond prices would not be expected to vary sharply in the future. However, such changes sometimes happen for various forms of bonds with respect to industry issues, such as those related to construction, or economic changes in general.
