True or False: Surety Bonds Are Only for Construction
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Unlike popular perception, surety bonds aren’t only for the construction industry. Determining whether or not a surety bond can benefit your manufacturing facility is simple. Just answer the below questions. If you’re still not sure what a surety bond is, find out by checking out my first blog post.
1. Have you considered that a strong surety program can enable your company to increase revenue and achieve growth to another level?
There are many benefits of commercial surety bonds:
- Prequalifies that your company is capable and qualified as an impartial third party
- Provides assurance your company is less likely to default on a contract or project
By significantly reducing the likelihood of default – it’s a way for you to bring your company’s business to the next level
If you were to provide a “performance” bond to a customer guaranteeing the terms of a purchase order for either supply and/or supply and install, would that provide you with an advantage over your competitors?
Yes, it provides customers/owners with a promise of an underlying purchase order or project completion, presents you as a qualified bidder and screens out the competition. Manufacturers’ bonds include supply, supply and install, appeal, customs, wage and welfare, license and permit.
3. Do you have collateral supporting your existing insurance program in the form of a letter of credit (LOC)?
A surety bond is an off balance sheet item, whereas, a LOC ties up a company’s cash/credit.
With a surety bond, the surety company conducts an impartial investigation to determine validity of a claim. With a LOC, the bank is required to pay on demand to the holder/beneficiary, no questions asked.
Also consider that a bond remains in effect for the duration of the underlying contract agreement and includes a 12-month discovery or maintenance period. The LOC is usually date specific, generally for one year and typically contains an “evergreen” clause for automatic renewal with related fees.
4. Does your company currently utilize cash deposits for utilities and/ or property leases, in lieu of posting surety bonds?
Surety bonds can free up cash deposits typically required for utility deposits or leases providing your company to better ways to utilize capital. It also offers better return on investment ( i.e. the cost for a $250,000 surety bond is $5,000-7,000 in premium dollars versus tying up the entire $250,000 as a cash deposit).
If you’re still wondering whether or not surety bonds apply to your manufacturing business, an ‘A’ Team member is here to clarify. Contact us today.
- Bonds: Insurance or Surety Shades of Grey?
- Surety Bonds: The Wave of the Future
- Gain a Competitive Advantage Using Surety Bonds
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