Know Surety

Commercial Bonds: Commercial bonds are a group of bonds that is part of the surety line of business that are comprised of license, permit, and miscellaneous bonds. These bonds are required by various municipalities or public authorities to indemnify them and/or the general public against loss in the event of violation of regulations or ordinances under which the license or permit is required.

There are thousands of of different types of commercial bonds that surety companies offer. Some examples of the most frequently purchased commercial bonds are contractor's license bond, tax preparer bond, notary bond, process server bond, etc.

Some commercial bonds are easily underwritten as they are solely based on the principal's personal credit profile and the premium rate associated with the bond will be dictated by the principal's credit worthiness.

There are however also many commercial bond that takes more than just personal credit into consideration. In general, a lot commercial bond submission should / must include the following:


******** In submitting request for a commercial bond, some or all of the following information should be included to insure a quicker response.


1) A commercial bond application: This 1-2 page application will provide the surety with general information on the principal. Each surety company will have their own commercial bond application as usually the forms themselves provide the indemnification necessary to obtain the bond. While Surety A might accept Surety B's application for the purpose of running the initial credit profile, Surety A will eventually require the principal to sign (and possibly notarize) Surety A's own commercial application if the principal wants to obtain the bond. A bond application will also help the surety to determine: the bond amount, who is requiring the bond of the principal (obligee), principal’s contact information, owner(s) contact and personal information, etc. A surety can decline an applicant if they find that any of the information is inaccurate. At times, a surety will not want to write bonds when certain obligees are involved.

2) Business Financial Statements (Balance sheet, income statement, statement of cash flows and aging schedule for account receivables and account payables) are classified into 4 categories, in order of preference by the surety. Because most commercial bonds are under $100,000 in penal sum, most sureties will accept any forms of business financial statements for the commercial bond submission.

- Audited Statements: An audit verifies relevant items in the financial statement with internal and external investigations of their accuracy. The accountant certifies that the financial statement is presented in accordance with generally accepted accounting principles.

- Reviewed Statements: A review statement, which does not require the outside verification present in an audit, consists principally of a thorough review of the contractor’s financial records and the application of certain analytical procedures to the financial data. Although narrower in scope than a full audit, the review does provide some limited assurance about the financial statements.

- Compilation Statements: A compilation statement provides little or no assurance of the credibility of the figures presented and would typically be accepted only for interim statements.

- In-house Statements: An in-house statement is internally prepares and very little weight or credibility at attached to the information on the statements.

3) Resume on the owner(s): Provides a clear and concise history of the people who either own or will be overseeing the business. This will let's the surety know that the key owners/employees has the knowledge and experience to run the business and undertake that scope of work that is called upon by the bond.

4) Personal financial statements of the owner(s): Like the business financial statements, they can be audited, reviewed, compilation or in-house. Most sureties will accept in house statements as long as the key assets (cash, stocks, short term assets can be verified). Some commercial bonds, like the used car dealer bond, will require that the owner or principal of the bond have a minimum personal net worth to qualify for the bond. In instances, where the majority of the principal's net worth is in easily to verify assets such cash and short term securities, it is also recommend that as part of the submission that verification of these assets are also submitted.

5) Current Bank Statements: As previously discussed in item #4, some bonds will require that the principal have a certain net worth and among the easiest way to verify the principal's assets are to provide current bank statements and brokerage statements that can verify some of the assets that were declared in personal financial statement.

6) A copy of the license or permit: In addition to the above information, certain commercial bonds will also require that the principal has already obtained the necessary permit or license before the bond can acquired. For example, surety companies will not issue a contractor's license bond to the principal if the principal does have the requisite contractor's license or are in the process of obtaining the necessary license.

A principal must qualify on all surety items named above. A surety can decline a principal if they fail to meet any of the sureties underwriting guidelines. The best way to understand what the surety is looking for is to go through everything one item at a time in detail. Some of the items below can be fixed immediately, others can take years to correct.