Different Types of Contract Bonds

There are many different types of contract bonds, and even though they all share the same basic mechanics, each one works a little differently. In this blog post, we will run down the most common types of contract bonds and show you where to find more information about them all.

What is a Contract Bond?

A contract bond is basically a way to hold someone accountable when they violate the terms of a contract. When that happens, the other party in the contact may file a claim against the contract surety bond. As long as the claim is true – meaning the party at fault violated the contract as the claim asserts – the surety company that backs the bond pays to settle the claim. Under the terms of the bond agreement, the party that caused the claim by violating the contract has the final financial responsibility for all claims. Therefore, even if they have been unable or unwilling to pay for claims before, they must pay the surety back for any settlement. Contract bonds are a way to hold one party responsible for violating a contract and provide the other party a guaranteed way to seek damages. 

What are the Different Types of Contract Bonds

Contract bond is a blanket term used to describe many different types of bonds in construction contracts or other industries. Bond seekers commonly need multiple types of contact bonds at once, and need different packages of bonds throughout their career. Common types of contract bonds include:

  • Bid BondsThese bonds hold someone accountable if they win a bid to complete a construction project and then pull out of the project before it begins. 
  • Construction BondsThis is another catchall term for a suite of contract bonds. Before starting a new project, contractors and construction companies often need to obtain all of these bonds: bid bonds, performance bonds, payment bonds, and (possibly) warranty maintenance bonds. 
  • Payment BondsIf someone fails to pay their suppliers or third-party contractors, the injured parties can file a claim against this bond to recoup lost payment. 
  • Performance BondsWhen a contractor or construction company fails to meet performance standards mandated in a contract – to finish by a certain date, to keep costs below a specific threshold, to maintain precise quality standards etc. – these bonds allow the other party in the contact to seek damages. 
  • SBA Bond Guarantee ProgramThis isn’t a type of contract bond but rather a program from the Small Business Administration (SBA) that helps entrepreneurs secure bonds they couldn’t have otherwise. 
  • Subdivision BondContractors hired to perform work inside of a subdivision may need one of these bonds, which hold contractors liable when their work falls short of expectations. A subdivision bond can also be called a developer bond, land improvement bond, or plant bond. 
  • Site Improvement BondSimilar to a subdivision bond, a contractor may need a site improvement bond before performing work on an existing land site. The bond protects the site owner from a contractor’s faulty work. 
  • Supply BondCompanies that supply goods and materials for construction projects may require this bond, which holds them responsible if a delivery of goods is not up to standards.  
  • Timber Sales BondIf a company intends to clear lumber from public land, they will need a timber sales bond stating they will take responsibility if their actions step outside the boundaries of a contract. 
  • Warranty/Maintenance BondThis bond applies to contractors and construction companies that agree to provide ongoing maintenance services or warranty protections. If they fail to deliver as promised, the other party may seek damages through the bond. 

Who should get a Contract Bond? 

Anyone required to do so according to the terms of a contract. When a contract requires a bond, the agreement isn’t final until the principal (the party required to get the bond) proves it has met the requirement. Different types of bonds in construction contracts can make or break a deal, so it’s crucial to comply with the bond requirement. As a nationwide surety brokerage issuing all types of contract bonds (including all the types outlined above), we can help you meet your bond requirements fast and in full. 

How to Apply for Different Types of Contract Bonds? 

In all cases, applicants must fill out a standard bond application, submit to a credit check, and supply a copy of the bond requirements specified in the contract – plus turn over any additional documentation the surety asks for. The surety will then quote a price for the bond, which the principal needs to pay to activate the bond. 

Viking Bond Service – Your Source for Contract Bonds

Rely on Viking Bond Service for any and all of your contact bonds. We can quote you a price in just 24 hours, and we are happy to work with bond seekers who have bad credit. Count on us to streamline the bond process and get everyone a competitive rate. Request a quote at your convenience. Or speak to one of our bond experts by calling 1-888-278-7389 or by sending your questions through the contact form on this page. 

Small Contract Performance Bonds and Payment Bonds – Good & Bad Credit

How can I get a surety bond with bad credit? That’s a question we hear a lot. Plenty of people have less-than-stellar credit, often because of mistakes that happened a long time ago. Nonetheless, many surety bond companies won’t work with applicants who have bad credit. Making matters worse, being unable to get a surety bond makes it difficult and often impossible for a contractor to win bids and find work. This becomes a vicious cycle where past financial mistakes make it harder to build a sound financial future. Fortunately, it doesn’t have to be this way. Some companies offer a bad credit surety bond program specifically for people who have a credit score below 700 or something like a bankruptcy on their record. No matter what your current credit is like, read this blog to understand how it will affect your ability to get bonded and what you will pay for that privilege. 

Why Do Surety Bonds Require a Credit Check?

To answer that question, it helps to understand how surety bonds work in the context of a contract performance bond. When a contractor gets hired to perform a job, contact performance bonds hold him financially accountable if he fails to meet performance standards (for time, cost, quality etc.) established in the work contact. If the contractor can’t or won’t accept that financial responsibility, the surety company that issues and backs the bond agrees to pay for any valid claims for damages – after which the bonded party (the contractor) must pay for the damages plus interest and fees. 

A surety company runs a credit check to help determine how likely a bond applicant is to engage in behaviors that could lead to claims on the bond. The surety is also trying to determine whether a contractor will pay for those claims, either immediately or after the surety steps in to pay. Essentially, the surety uses the credit check to gauge the risk of approving someone for a bond. Credit checks aren’t a perfect indicator, though, because many people with bad credit are financially responsible as well. That’s why some surety companies like Viking Bond Service have a bad credit surety bond program designed to help more people get the bonds they need regardless of their credit. 

How to Avoid Paying Too Much 

When deciding how much is too much to pay for a surety bond, keep in mind that surety bonds are essential business expenses. In the same way that contractors require tools and materials to complete a job, they require a bond, and if they don’t have one they can’t secure any business. Seasoned contactors understand this, plan for the bond costs, and then work these costs into the bids they submit for jobs. 

The best way to avoid paying too much, especially if you have less-than-perfect credit, is to work with the right surety bond provider. Every company is different. Some are more tolerant of risk than others, and each interprets a bond applicant’s credit score and financial history differently. You could apply for various kinds of contract performance bonds and payment bonds, specifically the trio contractors need for most jobs (bid, performance, and payment bonds), with multiple companies and compare the various offers. But that would be a lengthy process, and when you’re trying to win a bid, time is of the essence. The better move is to work with Viking Bond Service – a nationwide surety brokerage offering what’s known in the industry as a bad credit surety bond.

For all intents and purposes, a bad credit surety bond is just like any other surety bond. The only difference is that the applicant has bad credit and may have been denied a bond by other providers. At Viking Bond Service, we use our coast-to-coast connections, years of experience, and abundant resources to help more contractors get the bonds they require at affordable, competitive rates. Working with the right surety bond provider is the single best thing you can do to keep bonding costs in check. And if you think you’re paying too much with your current provider, investigate how much you could potentially save by switching. 

How to apply for Small Contract Performance Bonds and Payment Bonds?

If you need bonds to complete a contract valued at less than $350,000, applying is easy. You will submit a bond application, which takes only a few minutes to complete and asks for information about your background, business interests, and financial strength. You will also need to submit to a credit check and turn over any other documentation the underwriters (risk assessors) need to evaluate your bond worthiness. Based on that information, they will quote you a price for the bond premium. Having bad credit will mean paying a higher premium, but not exorbitantly high. Applicants with good or bad credit will both pay a small percentage of the total bond amount. 

Viking Bond Service – Our Bad Credit Surety Bond Program

There’s a reason contractors in all 50 states make Viking Bond Service their go-to bond partner. Unlike other bond providers, we make a real effort to make bonding fast, easy, and affordable for everyone we work with. If you have questions about surety bonds or your credit, get immediate answers from one of our bond experts – call 1-888-278-7389 or submit your question through the contact form on this page. You can also apply for a bad credit surety bond at any time, and expect to receive a quote in under 24 hours. Complete this online application!

Everything You Need to Know About Reclamation Bonds

If you’re involved with mining work, you may require a reclamation bond at some point. More likely, you will require this kind of commercial bond multiple times throughout your career. While this is certainly not an all-inclusive list, here are some common land use types that require reclamation bonds to be in place:

·         Surface mining of all types

·         Oil well drilling and plugging

·         Recycling facilities of all types

·         Storage of hazardous materials

Therefore, it’s important to understand how reclamation bonds work, how they affect your business, and why you need to take the bonding process seriously. In this blog, we will outline everything you need to know about reclamation bonds. 

What is a Reclamation Bond?

In the simplest terms possible, a reclamation bond is a guarantee that a mining company will restore any land it mines to either the original state or to a condition stipulated in the mining contract. If the contractor fails to restore the land as required, the reclamation surety bond holds the contactors financially responsible. 

Like all kinds of surety bonds, reclamation bonds provide a mechanism for one party to hold another party accountable for unethical or unlawful behavior. The wronged party may file a claim against the surety bond seeking damages. The company that issues the bond will then investigate the claim. Provided that the claim is true, the surety company pays for it in full. Lastly, the surety collects the amount of the claim plus interest and fees from the party that has financial responsibility under the bond agreement (in this case the mining company). By entering into a bond agreement, it becomes impossible for a mining company to abandon its responsibility after a mining project concludes. 

Why Get a Reclamation Bond?

Most mining contracts require a company to get bonded before they’re allowed to break any ground. When required, there’s no wiggle room. Contractors will need to prove they have a bond before they’re awarded a contract, and they will need to keep that bond active for as long as the contract stipulates. The mining company bears the full financial cost of the bonding process, but it’s a necessary business expense since these bonds are more or less mandatory for mining projects. If you require a reclamation surety bond, work with Viking Bond Service to get a fully compliant bond at competitive rates in almost no time at all. 

Requirements for a Reclamation Bond?

The requirements vary depending on the applicant and the size of the bond. In some cases, applicants must put up collateral equal to some or all of the bond amount. For example, a $100,000 bond may require $50,000 in collateral. But the collateral requirement isn’t universal, and if you work with the right surety bond provider you’re less likely to face a collateral requirement. The only other requirement is that you pay the premium to activate the reclamation bond. Expert the premiums to cost a small percentage of the total bond amount, typically less than 10% of the total. Exact amounts depend on the applicant’s credit. Some surety companies will deny an applicant with bad credit, putting his or her mining business in serious jeopardy. Viking Bond Service isn’t one of those companies – we do everything possible to approve applicant’s even if they have bad credit

Who are the Parties Involved in a Reclamation Bond?

The mining company is one of three parties involved in the surety bond agreement:

  • Principal The mining company that pays to get bonded and pays to settle claims filed against the bond. 
  • Obligee The government agency responsible for land where mining occurs. The obligee has the right to file a claim for financial compensation to recoup the cost of land mistreated by mining companies.  
  • Surety The company that issues the reclamation surety bond and agrees to settle any claims if the principal can’t or won’t settle. When the surety pays, however, the principal must pay that amount back in full. 

How to Apply for a Reclamation Bond?

The underwriting process takes longer for reclamation bonds than some other kinds of bonds because they’re non-cancellable – meaning the bonds stay active for years (during and after a mining project). The surety company accepts a lot of risk with this type of surety bond, so they take their time evaluating applicants, and many require collateral as well. To apply, you will need to submit a bond application, a financial statement, and anything else the surety company requests. Work with Viking Bond Service to make the application process easy and efficient. 

Viking Bond Service – Reclamation Bond Experts 

It shouldn’t be a hassle to get bonded. That’s why people work with Viking Bond Service. As a nationwide surety brokerage, we issue reclamation bonds in all 50 states at competitive rates. For more information, contact our team directly at 1-888-278-7389 or through the contact form on this page. You can also get the application process started now by completing this online application

Everything Contractors Need to Know About Bid Bonds in 2020

Bid bonds are a fact of life for contractors. Basically all public sector projects require contractors to have this type of surety bond before they’re allowed to submit a bid for work, and many private sector projects have the same requirement. Bid bonds hold a contractor financially responsible if they’re awarded a work contract but don’t accept the job. Developers and project owners use bid bonds as a way to discourage contractors from submitting bids they can’t or won’t fulfill, wasting valuable time and resources in the process.

How to Get a Surety Bond: Performance Bond Examples

Performance bonds are a type of surety bond that help contractors manage risks and make sure the job is done right. In 2750 BC, the pioneering historian Herodotus reported the use of performance bond agreements as a form of surety. Today, across public and private sectors alike, performance bonds are used by owners to ensure that contractors are up to the task. The extra security that a surety bond offers is an important part of a successful project.

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Surety Bonds and the COVID-19 Impact

The COVID-19 pandemic has affected every single industry, including surety bonds. That doesn’t come as much surprise considering that surety bonds are weaved into the fabric of the broader economy. Many professionals and businesses need them to operate legally, and most contracts aren’t complete until bonds are in place. When the outbreak of a global pandemic causes business activity across states and sectors to take an unprecedented plunge, one would only expect the surety bond industry to feel the impact.

Learn About Court Bonds

What’s a court bond? It’s a way for courts to hold defendants and plaintiffs accountable for paying financial judgments. When courts require someone to pay and they either can’t or won’t, the person they’re responsible for paying may file a claim against the surety bond. The surety company backing the bond will pay for all valid claims, and then they will collect the amount of the claim (plus interest and fees) from the original bond holder. For the bond holder (known as the principal) court bonds work like a line of credit. And for the beneficiary of the bond (known as the obligee) bonds guarantee they will receive the damages they are owed. 

A Guide to Obtaining an Alcohol Surety Bond for Your Business [Infographic]

If you plan to open a brewery, liquor store, bar, or any other business involved with alcohol, you may need an alcohol surety bond. Here are the quick answers to all your most important questions:

What is an Alcohol Surety Bond?

Bonds hold you responsible if you break state rules for alcohol-related businesses. States use them to maintain oversight over the alcohol industry and hold offenders responsible. You will need to obtain a bond, and you will need to pay claims filed against the bond. If you don’t, you will lose your liquor license.

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Learn about Various Types of Commercial Surety Bonds [Infographic]

If you need a commercial surety bond, here’s a quick introduction:

What Is a Commercial Surety Bond?

This type of bond is a way to guarantee one party (the principal) in a commercial arrangement meets their obligations to another (the obligee). Those obligations could include following law and regulations, meeting fiduciary responsibilities, or abiding by contractual obligations. When necessary, the obligee is allowed to file a claim against the bond seeking compensation. The company that issues the bond (the surety) agrees to pay if the principal doesn’t, but the principal (you) must reimburse the surety in full.

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