Secret #102: Little Bonds That Bite

 “The water looks great!  Let’s go in!” 

Like nasty little fish with razor sharp teeth, there are many small surety bonds that can cause BIG problems.  Here are some to watch out for.

piranha2Appeal Bonds – Anyone can be sued.  If a judgement was rendered and you wish to appeal the decision, you will need one of these.  ALL bonding companies are reluctant to provide them.  Plan on putting up liquid collateral in an amount greater than the judgment.  The alternative: Don’t appeal the decision, pay it.

Other Court Bonds: Replevin, Injunction, Release of Lien, all can be hard to obtain.  The Release of Lien normally requires full collateral.

Fuel Tax Bond– Any bond with “Tax” in its title can be tough.  These are guaranteeing future payments.  Financial obligations are the most difficult for sureties to support.  Plan on a rigorous underwriting process with the likelihood of collateral required PLUS full indemnity.

Dealer Bonds– Used Car Dealers, Milk Dealers, are some examples.  These guarantee compliance with applicable laws and proper handling of funds.  If the applicant is a new company and lightly financed, underwriters run for cover.piranha1

Customs Bonds– There are many different kinds.  Import / Export companies may be set up to qualify for these but other firms can have trouble. A Single Entry Bond is needed to import a shipment without delay, i.e. perishable or time sensitive goods.  The applicant’s financial data must be appropriately dated, correct in form, and show adequate strength.  Not everyone is prepared for this.  If you can’t get the bond, your pomegranates may rot on the dock.

Utility Deposit Bond– Required by the power company on new commercial accounts. In the absence of demonstrated financial strength, collateral will be required.

Lost Instrument Bond  “Hillary, have you seen my saxophone?”

Actually, these concern lost or destroyed FINANCIAL instruments such as a check or security.  These bonds have a long term, only one premium is normally collected, and they can be the subject of fraud.  Sureties are “not fond of them.”piranha3

Bid Bonds– Their dollar value may be low – resulting in the expectation that they are easily obtained. Wrong! The underwriting is based on the potential Contract Amount which may be five or ten times larger.  The process can be difficult if the company is young or financial strength / credit is lacking.

Wage and Welfare Bonds-These are needed when contractors set up relations with a labor union.  For underwriters, this is the least desirable part of the account.  A company that can get a $250,000 performance bond may find that the same surety requires full collateral for a $20,000 labor union bond.  Ugh!

The fact is, there are many nasty little surety bonds.  They can disrupt a company and its relationships when they are hard to obtain.  Failure to get them can be fatal!  These small bonds can have a big impact.

The best step is to deal with an expert in handling such transactions.  Go to a bonding pro for advice and market access.  Specialists often know how to resolve these problems.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

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