We often find there a general confusion about NV surety bonding versus insurance among business owners. While bonds are frequently sold by insurance companies, they are unique and provide a different coverage guarantee than an insurance policy. To add to the confusion, there are myriad of different bonds, some required by governmental agencies, others to guarantee contract performance and some that protect employers against dishonest acts of employees. And, each category of bonds has different underwriting rules, rates, and qualification requirements.
Surety bonds, in a broad sense, are a guarantee of payment or performance between certain parties. A typical bond will have at least 3 parties:
- The obligee – the person or organization requesting the bond. This could be a government agency requiring a business license or sales tax bond. Or, it could be another company to whom you have a contractual obligation.
- The principal – the person or organization buying the bond.
- The surety – the bond company assuring payment or contract fulfillment to the obligee.
Bonds are a credit relationship, meaning the bond company is providing a guarantee of payment or performance, with the assurance the principal will reimburse them for any costs associated with a claim. The guarantee of payment is made to the obligee, not to the principal. This is perhaps the most misunderstood aspect of surety bonds. Unlike insurance coverage, claims made against a surety benefit the obligee and must be repaid by the principal. Because of this, bonds are typically underwritten carefully and may require the following:
- A personal credit report run for each owner of the principal’s business.
- Review of financial information including bank statements, profit, and loss, balance sheet.
- Personal indemnification (guarantee of repayment) from each principal.
Pricing Surety Bonds
Bonds are underwritten and priced based largely on two factors. First, the type of bond and terms of guarantee offered to the obligee. Second, the ability of the principal to repay the bond company in the event of a claim. Essentially, the greater the risk to the bond company, the higher the required will be to the principal. Contract surety bonds, for example, have rates ranging from 1% t 10% depending on the financial strength of the principal and the terms required by the obligee. License and permit bonds required by a city or county are typically inexpensive. However, DMV bonds (auto dealers and repair) are often expensive and require the principal to have excellent credit and strong financials. An auto dealer bond ($100,000 required in Nevada) can range from $750 to $3,000 depending, again, on the merits of the principal.
Applying for a Bond
The process begins with a phone call to our office. Many bonds can be applied for over the phone and approved within minutes. More complex bond might require additional documentation. Our knowledgeable agents will make the process as simple and painless as possible. Contact us today to get started!