Bond for a Loan?

[chefman]

We are currently in the process of obtaining an loan from the State of Tennessee for services we render. They are requesting that we obtain a surety bond for the amount of the loan. Can you help?

[marietta68]

We are currently in the process of obtaining an loan from the State of Tennessee for services we render. They are requesting that we obtain a surety bond for the amount of the loan. Can you help?

This is an obligation that customary surety companies are unable to write due to provisions in NY law, frequently referred to as the Appleton Law, which prohibits any company that writes fidelity and surety business in the state of New York from writing financial guarantee bonds. Repayment of a loan would fall into that category. There are off shore specialty companies that write financial guarantees of this nature, but being outside of US regulations, please be wary about these writers. Most interesting is that the state of Tennessee is in the lending business...

[Admin]

Great post Marietta! You actually taught me a bunch in that one. It just goes to show, there is always something new to learn when it comes to suretyship.

[marietta68]

Great post Marietta! You actually taught me a bunch in that one. It just goes to show, there is always something new to learn when it comes to suretyship.

Thanks very much - it's the diversity of this business that I've found so challenging all these years, and it's a haven for short attention spans! Seriously, though, the issue of what can and can't be written as a financial guarantee has been a tough one to deal with over the years - we call utility bonds "financial guarantees", but the NY law lists the guarantee obligations that are prohibited from writings. The next obvious question would be, "Who cares what NY law says, I need a bond in Tennessee!". Problem is that the law states that if the surety writes their version of financial guarantees in ANY state, they'll be prohibited from doing business in New York. Well, the bond companies aren't generally willing to forego NY business, so the mainline companies all walk the line with great vigilance.

I still think the squirrely part of this discussion is that the state of Tennessee is making loans that they want secured by a surety bond...would love to know the rest of the story. What would the taxpayers think?!

[Admin]

I think the inconsistencies within the surety industry is why it takes so long for people new to it to catch on. It also keeps vets finding out new things throughout the years. I can't think of many statements about suretyship that are always 100% true, there is always an exception to the rule.

As for New York state, I know of several niche sureties that do not want anything to do with the state now or anytime soon. It seems that Washington state does a good job of scaring away some with their screwy rate filings as well.

As for Tennessee taxpayers, I am sure like all states there is a lot they do not know. If you found out where the taxes were going you might cry when looking at your next pay stub.