Why no high risk program?

[Bond Magician]

Why is it that you can issue commercial bonds for people with bad credit, but not contract bonds? What is the difference?

[Surety Queen]

Originally Posted by Bond Magician

Why is it that you can issue commercial bonds for people with bad credit, but not contract bonds? What is the difference?

Contract bonds are in a different category than commercial bonds. A contract bond is for the entire value of the contract. Because you could be personally responsible for the contract, Surety wants to make sure that if there is a problem and they have to complete a project on your behalf, that you have some financial way to reimburse them for any costs. If you have bad credit - there is probably nothing there to reimburse with.

[Admin]

Surety Queen is absolutely right. Let me elaborate as to why commercial is acceptable for high risk while contract is not...


Commercial bonds are paid on an annual basis, where contract bonds are paid per job. Since a bond is based on a percentage of the bond amount, this means the contractor would have to bill for the bond on their bid. If you think about it, how can a contractor that has 10% taken right off the bat compete? The only way would be to have a much lower price, otherwise know as a large bid spread. Large bid spreads often scare sureties even for financially sound companies, as they usually occur due to miscommunication or the contractor failing to bill for everything. Obviously not billing for work or miscommunication can easily lead to a claim. This is why we have not seen a surety that is willing to write contractors at a higher rate.