Frequently Asked Questions
Why use Bayside?
We represent many surety companies, all with different underwriting philosophies to better service your bond needs. In addition, we have some of the most experienced underwriters on staff to help choose the right surety company for your bond needs. Once we begin our new relationship with an account, we typically meet with you in person along with a surety underwriter, evaluate your financial statements annually, and devise a plan with which to reach future bond goals.
Bayside has a wide range of standard and non-standard options. With regards to standard accounts, we have both national surety companies, who write the large accounts, and regional, standard surety companies that write smaller to mid-size accounts. And of course, we have several non-standard surety companies to handle our specialty accounts by using specialty tools like SBA, collateral, and joint control.
What is a surety bond?
A surety bond is a third-party instrument which guarantees that an individual or company will fulfill their obligations. The surety bond is an agreement between three parties: the Principal (the person or company requesting the bond), the Obligee (the beneficiary on the bond) and the Surety Company (third party guarantor).
Surety bonds are designed to protect the public or private company’s monies or to help protect the public against unethical business practices, fraud, or business failures.
What is indemnity?
A surety indemnity agreement can be specific to one bond basis or general, covering all bonds. It is an agreement between the principal and the surety bond company which states the principal’s company and the principals themselves, along with spouses, agree to indemnify or to pay the surety back for any losses incurred by the surety on a bonded job.
In the case of a claim, the surety company is liable to pay the obligee the amount up to the penal sum of the surety bond. This can be for either the performance bond or the payment bond, which are separate instruments. In regards to a payment bond, a claim can be filed by a subcontractor, supplier, or others who are owed money for services offered on the job.
After satisfying a claim, the surety company will seek to be indemnified by the principal, as governed by the indemnity agreement, to subrogate their loss, plus any cost incurred in transacting the claim. The indemnity agreement may either be an unsecured signature guarantee or may be collateralized up to 100% with some form of security, such as a cashiers check for your revocable letters of credit. Collateral is often required for individuals with poor credit.
Will bad credit have a negative effect on my bond request?
Credit rating can be a major factor when a surety company is determining your surety request. For people with poor credit – or those with no credit, it can be very difficult to find surety protection. If a surety company is found that will write the bond, it may require up to 100% collateral to execute it.
Are surety companies different?
There are numerous surety companies writing bonds today, however they are all somewhat different in their underwriting approaches:
-Not all offer the same types of surety bonds.
-Some will take collateral, some will not.
-There is a difference in underwriting policies, required paperwork, efficiency in submission turn-around, etc.
-Some sureties work with the SBA or with Joint Control Companies, some do not.
-Financial stability varies among surety company.
A.M. Best, an independent third-party evaluator of insurance and surety companies, offers rankings that assist consumers in evaluating the stability of a surety company. Bayside only works with surety companies with an A- or better rating.
What is collateral?
Collateral is an asset pledged to the surety in order to secure the bond. It is often in the form of cash posted directly to the surety company. More frequently however, the surety will allow the principal to provide a letter of credit from their bank that allows the surety to draw down upon the principal’s existing line of credit in the event of a claim. Surety companies will sometimes require collateral for hard to place surety bonds. These bonds may be considered a very high risk of claim due to very nature of the obligation covered. Another reason may be that the principal has a low credit score. When collateral is used, the principal is required to sign a collateral security agreement regarding the surety’s terms of collateral release. This allows the surety to hold the funds for a certain time period beyond the end of the bond term.