5 Main Advantages of Surety Bonds

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Benefits of Surety Bonds in San Diego, CA

A surety bond is a contract that ensures certain obligations will be met among three parties: the person or entity requiring the bond, the person or entity who needs the bond (principal), and the surety or insurance company that guarantees the principal can meet these obligations. Surety bonds come in two primary varieties: contractor bonds for public construction and license and permit bonds for professionals such as contractors and collection agencies. Here are five important benefits of surety bonds San Diego residents should understand before getting bonded.

1. Prevents Penalties for Practicing without a Bond

Several industries require surety bonds to license their practitioners, including some contractors, debt collectors, private investigators, and car dealers. A license and permit bond is essentially a guarantee that you’ll fulfill your business obligations in an ethical and faithful manner. If you operate illegally without the required license and bond, you may face criminal charges and hefty fines.

2. Increases Customer Confidence

Customers may have concerns about working with an unfamiliar business, especially in an industry that may be targeted by fraudsters. The bonding process boosts consumer confidence in your business because customers know you can be held accountable for your performance and they won’t risk losing a large sum of money if you fail to provide the services or products promised.

3. Provides an Affordable Alternative to a Letter of Credit

A letter of credit is an alternative to a surety bond, and it works in a similar way. This third-party agreement is issued by a bank and guarantees payments will be made to the beneficiary under specific conditions. While surety bonds and letters of credit accomplish the same goal, surety bonds are more affordable. A letter of credit ties up a company’s credit capacity and may come with hidden costs such as utilization and issuance fees. Surety bonds have stable, predictable rates and typically only cost 1–3 percent of the bond amount with good credit.

4. Reduces Unqualified Competition

Surety bond applicants go through a strict review process to assess financial security and qualifications for their industries. As a general rule, applicants who are poorly qualified or have a questionable history in their industries may find it difficult to get the bonds they need to operate legally, which reduces the amount of competition faced from unqualified business owners and contractors in the area.

5. Offers Greater Availability of Opportunities

Bonding can open up a greater number of business opportunities, regardless of industry, by demonstrating financial strength and ethical business practices. For example, pursuing public contracts typically requires a bond, as government entities want to safeguard taxpayer funds and ensure projects are completed on time. An unbonded construction company is usually unable to pursue public contracts. Even large private contracts may be difficult to obtain without a bond to ensure the developer can recover financial losses if the construction company doesn’t fulfill its duties.

Surety bonds provide businesses and customers with peace of mind that their assets will be protected. If you need a surety bond to operate your business, reach out to the reliable professionals at Altra Insurance Services. In addition to surety bonds, we provide several types of insurance products, including homeowners, commercial, and auto insurance. San Diego residents should give us a call today at 619-474-6666 to learn more about our high-quality services.

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