Question 1

Are surety bonds the same as insurance?

Accepted Answer

No, completely different financial products. Insurance pools risk across many policyholders; if a covered loss happens, the insurer pays without expecting reimbursement. Surety is credit — the surety guarantees performance to a third party but expects YOU to reimburse any claim payment. Sureties underwrite like banks underwrite loans, with personal guarantees and indemnity agreements. A surety bond is closer to a letter of credit than to an insurance policy.

Question 2

What's the difference between bid, performance, and payment bonds?

Accepted Answer

Bid bonds (typically 5%–10% of bid amount) guarantee that if you win, you'll execute the contract at the bid price. Performance bonds (typically 100% of contract amount) guarantee you'll complete the project per contract terms. Payment bonds (also typically 100%) guarantee subcontractors and suppliers will be paid. On Florida public projects, all three are commonly required as part of the bid package.

Question 3

How is surety bond cost calculated?

Accepted Answer

Most surety bonds are priced as a percentage of the bond amount (called the 'rate per thousand'). Standard contractor performance/payment bonds run 1%–3% of contract value annually for well-qualified contractors; that's $10K–$30K on a $1M project. License bonds, court bonds, and small commercial bonds are typically priced as flat annual premiums based on the bond amount and applicant credit. Personal credit scores below 650 push contractors into higher rates or specialty surety markets.

Question 4

What documents do I need to qualify for a contractor performance bond?

Accepted Answer

CPA-prepared financial statements (compiled, reviewed, or audited — depending on bond size), personal financial statements for owners, work-on-hand schedule listing current and pending projects, three years of tax returns (personal and business), bank reference letters, project history references, and signed indemnity agreements. Larger bonding capacity (above $5M single-project) requires audited financials and stronger documentation. Smaller bonds may qualify with simpler tax-return-based applications.

Question 5

What's a license and permit bond?

Accepted Answer

License and permit bonds are required by various Florida agencies as a condition of holding certain licenses — examples include freight broker bonds (BMC-84), mortgage broker bonds, motor vehicle dealer bonds, contractor license bonds, and notary bonds. The bond protects the public (and the agency) from harm caused by the licensee's misconduct or noncompliance. License bonds typically run 1%–10% of the required bond amount annually depending on credit and occupation type.

Question 6

Can my company qualify for surety with bad personal credit?

Accepted Answer

It's harder but not impossible. Standard sureties typically require personal credit above 650–680 for owner indemnitors. Specialty surety markets exist for credit-challenged applicants but charge significantly higher rates (sometimes 5%–15% per year vs. 1%–3% standard), often require collateral, and limit single-project capacity. The right play for most contractors with credit challenges is to work the credit issue first while bonding through a specialty market, then transition to standard sureties when credit recovers.

Question 7

What's an indemnity agreement?

Accepted Answer

Every surety relationship requires a General Indemnity Agreement (GIA) signed by the company and typically by the owners personally and by their spouses. It commits you to reimburse the surety for any claim paid, plus expenses and legal fees. The GIA also gives the surety broad rights to access your books, take over the project if needed, and pursue collection. It's a serious commitment — review it carefully with your attorney before signing, especially the spousal provisions.

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