Surety bonds allow you to meet your contractual or commercial obligations without tying up your assets. Providing security can put a strain on your finances and lines of credit. Our surety products provide a fast, cost-effective alternative to bank guarantees or cash deposits.
Bonds vs Letters of Credit
Typically written on an unsecured basis (Signature guarantees only).
No impact on Principal’s other credit facilities.
Bonded obligations are not reported on the financial statements of the Principal.
Surety bonds are billed for the duration of the underlying contract and usually include a one year maintenance/warranty period after completion and acceptance of the project.
Bonds stand behind the Principal. Principal must be in default of its contractual obligation and exhausted its “cure” provisions before the surety bond steps in. Principal has the right to defend itself and contest a default before the surety enters any payment.
In the event of a default by the Principal, the Surety has several options to cure the defect and may recover its loss from the beneficiary or others associated with the project if warranted.
Letters of Credit
Secured by liquid assets of the Principal.
Reduces the amount of credit/borrowing capacity of the Principal.
In most countries Letters of Credit appear as liabilities on the balance sheet.
Letters of Credit is “pay on demand” without any need for the beneficiary to prove a default.
Beneficiary draws down the full amount of the Letter of Credit and the Principal then has to prove its position to get the funds returned. This is very difficult.
A deposit bond is a substitute for the cash deposit required to secure a Contract of Sale when buying a residential or commercial property. You simply pay the full purchase price at settlement and the deposit bond becomes ‘null & void’.
If the buyer fails to settle, with a deposit bond, the vendor presents the deposit bond to the insurance company that issued the deposit bond; the vendor is paid the full amount of the deposit bond; and the insurance company comes after the buyer to recover the deposit bond amount.
Our expert insurance brokers are on-hand to find the best solution for your Surety Bond needs. Contact us for a quote today.