SURETY BONDS
We Issue Surety Bonds Globally!
Surety instruments offer project owners the assurance that their contractors will fulfill their contractual obligations and make payments to subcontractors and material suppliers. When a contractor obtains a surety bond, the risk of the construction project is transferred from the contractor to the surety company. Without access to the surety market to obtain bonding, companies may be unable to undertake significant infrastructure projects.
What type of surety instrument can help your business in securing new contracts?
SURETY BOND VS STANDBY LETTER OF CREDIT
WHAT IS A SURETY BOND?
Surety Bond: It's an undertaking that guarantees compliance, payment or performance of a contractual agreement. It's used by project owners, contractors and subcontractors.
Standby Letter of Credit: It's a guarantee issued by a financial institution on behalf of a client to make payment if the client is unable to meet their obligations to the beneficiary. The client is often required to pledge full cash collateral.
WHO ARE THE PARTIES INVOLVED IN A SURETY BOND DEAL?
Surety Bond: The Principal (who has the obligation to pay or perform), the Obligee (who is owed the obligation), the Surety (who assures the payment or performance of the contract between the principal and the beneficiary).
Standby Letter of Credit: The Applicant, the issuing Bank and the Beneficiary (The Beneficiary bank is included for SWIFT transactions).
DO I NEED SECURITY FOR A SURETY BOND?
Surety Bond: Unsecured with an indemnity agreement. A Surety bond can be partially secured if the principal does not have a strong balance sheet.
Standby Letter of Credit: Fully secured with cash or carved out of a bank credit facility .
WHO CAN ISSUE A SURETY BOND?
Surety Bond: Surety bonds are issued by Surety companies (mostly insurance companies).
Standby Letter of Credit: Letter of Credit are issued by Financial Institutions.
WHAT IS A SURETY BOND USED FOR?
Surety Bond: Infrastructure and government projects, regulatory & customs requirements.
Standby Letter of Credit: Used across diversified industries.
HOW IS THE CLAIM PROCESS FOR A SURETY BOND?
Surety Bond: If a Surety company deems a claim to be groundless, they may refuse to honor it. However, if the claim is found to be valid, the Surety will typically take steps to ensure the project is completed.
Standby Letter of Credit: As long as a draft presentation conforms to the terms outlined in the Letters of Credit, Financial Institutions are obligated to honor claims and pay out the pledged collateral.
WHAT IS THE MAIN DISTINCTION OF A SURETY BOND?
Surety Bond: It's attached to the contract, the principal must default in order to trigger the Surety's obligation. A Surety bond is not an insurance contract.
Standby Letter of Credit: It's independent from the underlying contract therefore the issuing bank must pay when a proper draft is presented regardless of whether the underlying contract has been properly executed or not.
WHAT ARE THE + AND - OF A SURETY BOND?
Surety Bond: This is not a demand instrument like a Standby Letters of Credit. The Surety company investigates the default when the Bond is called. This often will slow down the reimbursement process to the project owner.
Standby Letter of Credit: Payment is made by the bank immediately when the proper draft is presented. It's more attractive to beneficiaries because there is no need to prove a breach of contract.
VARIOUS TYPES OF BONDS
Bid Bond
Performance Bond
Advance Payment Bond
Maintenance Bond
Labour & Material Payment Bond
Supply Contract Bond
KEY MISTAKES TO AVOID
Not knowing which Bond Type
Not knowing the exact Bond Amount
Posting the Bond for the wrong timeline
Not verifying the legitimacy of the issuer
HOW CAN WE HELP?
We have extensive experience working with a range of industries that use surety bonds, and we understand the critical role that surety instruments play in securing contracts. We work closely with our clients to develop tailored surety solutions that align with their specific requirements, while also providing the support and guidance throughout the bonding process.