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Understanding The Costs Of Canadian Construction Surety Bonds

cost of 10000 surety bond

Most Canadian business owners are skeptical about buying surety bonds. After all, they’re concerned that they’re going to be required to pay an expensive fee. Well, you should know that surety bonds do not have to break the bank. However, the price will vary based on a handful of factors. With that being said, you need to make sure that you’re aware of the costs before agreeing to sign on the dotted line. Failing to do so could result in your company spending more than you should. The good news is that you’ve come to the right place.

On this page, you’re going to learn a lot more about the expenses associated with surety bonds. Simultaneously, you’ll find out how much you’ll likely pay for a $10,000 construction surety bond.

 

Getting The Exact Price

Unfortunately, acquiring the exact price for a surety bond can be tough. You know that you need $10,000 yet there are many other factors at play. For instance, it is up to the bond underwriter to determine how much to charge. If you’re going to be acquiring a surety bond, you will have to work with an underwriter. That individual will study your company’s finances, history, and more. Once they’ve done that, they’ll determine how much of a risk your company is. Then, they’ll put a percentage on it. You will not be paying $10,000.

Instead, you will be paying a percentage of that amount. The percentage can vary from 1% to 10%. There is no universal price for surety bonds. Therefore, you have to be prepared to pay a different amount each time you acquire a bond. If you have good credit, there is a good chance that your prices are going to be lower. Legislation has been passed to ensure that surety bonds are required for municipal contracts in Ontario.

Therefore, you cannot avoid getting a surety bond. Make sure that your company is bonded so you can begin acquiring contracts and making money.

Average Cost Of A $10,000 Surety Bond

So, how much should you expect to pay for a $10,000 surety bond? Ultimately, it is going to depend on numerous factors. Your credit will make a difference.

Now before jumping into learning about cost, it would be worth noting that you pay for the bond when you get awarded the job or project. In most called you would be asked to present a performance bond (50% of 100%) along with a labour and material bond (50%) to guarantee your completion of the construction or project.

Simultaneously, you have to remember that the bond underwriter is going to consider your company’s finances, your locations, and your history. If you have good credit and your company is a lower risk, you will likely be required to pay 0.75 or 2.5% of the bond amount. Therefore, you would be looking at annual payments ranging from $100 to $250.

If your credit is bad, you will likely pay more. The percentage you’ll pay will be between 2.5 and 10%. Therefore, you will end up paying $250 to $1,000 each year. It is pertinent to take steps to minimize your costs. Otherwise, you’re going to be paying too much for surety bonds and that will come back to haunt you in the future. You can enhance the financial performance of your business by avoiding claims and keeping your credit in good condition.

In return, you’ll pay less for surety bonds and your company will have a much easier time succeeding.

Average Cost Of A $100,000 Contact

There is a chance that you’ll be required to obtain a $100,000 surety bond at some point. This likely means that the contract is going to be very lucrative for your business. With that being said, you need to obtain the contract as soon as possible. Just remember that the prices are going to increase. After all, the collateral is higher. Nevertheless, you won’t have to pay the amount in full. Again, you’ll find yourself working with a surety provider. And, you can guarantee that you’ll be able to find a good deal as long as you shop around enough.

Again, the company will analyze your history, your area, and your finances. Once they’ve done this, they’ll determine how much you’re going to be required to pay. However, you should expect to pay anywhere from $500 to $2,000. This is the average price of a surety bond for $100,000.

 

Factors That Will Impact Your Surety Costs

Ultimately, you have to remember that numerous factors are going to impact your surety costs. It is pertinent to make sure that you’re working diligently to ensure that you keep your costs to a minimum. The good news is that you can familiarize yourself with these factors and go from there. Below, you will find information regarding the factors that will impact your surety bond costs.

Financial Statements

First and foremost, you have to remember that the surety company is going to look at your company’s financial statements. There is always a risk that you’re not going to be able to live up to your end of the arrangement. If you cannot, there is a chance that you’ll be hit with a claim and a hefty penalty. Will your company be able to afford these costs? If not, there is a good chance that the surety company is going to be hurt. This is why the underwriter is going to analyze your financial statements.

They want to make sure that your company is financially sound. If it is, you’ll likely be able to cover the costs without too much trouble. In return, the risk for the surety company is minimized. With that being said, you have to remember that the surety company is going to analyze your company’s financial statements. Once they’ve done that, they’ll know how much of a risk they’re going to be taking working with your company. In return, they’ll know how much to charge.

If you’re able to perfect your financial statements, you can take steps to minimize your costs.

Liquid Assets

While you’re at it, you have to understand that the company is going to consider your liquid assets. They want to make sure that your company will be able to pay any penalties for not completing the contract in time. After all, the surety company does not want to shoulder this burden. This is why they’ll analyze your company’s liquid assets. If you have fewer liquid assets, there is a good chance that your prices are going to be much higher.

With that being said, you should take steps to maximize your liquid assets. Doing so is the best way to minimize your costs and avoid overpaying for surety bonds.

Industry Experience

The surety company wants to make sure that your company is going to get the job done right and on time. If they know that your company will achieve these goals, they’ll be taking a lower risk. This is why they’re going to analyze your company’s industry experience before moving forward. They want to make sure that the risks of a claim being filed are minimized. Therefore, they’ll be more likely to work with companies that have succeeded in the past.

If you’ve only been in business for a year, you’re likely going to be paying more. However, companies that have been in business for many years will likely pay less. Just remember that your historical performance will make a big difference too. If you have tons of claims, you can guarantee that you’re going to be paying a lot more. It is pertinent to stick with it. Continue working hard so you can expand your knowledge and experience.

Simultaneously, you have to do everything in your power to avoid surety bond claims. This combination will ensure that you’re able to minimize your costs for surety bonds.

Bad Credit: Can You Get A Surety Bond?

Many contractors fail to apply for a surety bond because they have bad credit. It is a fact that poor credit history can compromise the applicant’s ability to get approved for a surety bond. However, there are some surety companies that are willing to bond applicants with low credit scores. If you are looking to obtain a surety bond for long-term service or temporary project and you have a history of not paying your bills on time, you should still go through the application process. Below, you will discover more information about bad credit and surety bonds.

Some surety companies have programs specifically set up for businesses, individuals, and organizations with bad credit. These programs give those with poor credit rating access to some of the best surety bonds. But, you must know that there are some downsides to bad credit surety bonds. These downsides include higher premiums and stricter guidelines.

An applicant with bad credit must go through the same pre-approval process as applicants with good credit. The pre-approval process is very complex and can take several days to complete. The applicant must provide the surety company with his/her financial records, a current credit report, proof of a business license, and other important information. 

Even though some surety companies offer bonds to applicants with bad credit, the applicant must be able to prove they are capable of fulfilling the contractual agreement. In most cases, the obligee finances the project upfront. An investment amount is agreed upon during the contractual process. Once the amount is determined, the obligee will pay a percentage of that amount to the principal before the project is scheduled to begin. That money is utilized to fund the project, removing some of the burdens from the principal.

Location

There are other factors that can warrant higher premiums for surety bonds. One of these factors is the scheduled location for the project. If the project is going to take place in a high-crime area, the surety company will take this information into consideration. Many surety companies penalize surety bond applicants working in high-crime areas. The main reason behind that theory is because there are higher risks involved in working in areas where crime is prominent. Not only is the contractor and his/her employees at risk of becoming a crime target but also their equipment, tools, and machinery. 

Anyone familiar with the construction and development industries know the risks of working in areas knows for a lot of crime. Unfortunately, these areas have a lot of criminals that are always trying to get their hands on stolen goods that can be sold for cash. All projects in the construction and development industries utilize heavy equipment, machinery, and tools. And, many times these items are too large to transport from the job site to a safe location after the work is done each day. So, it is left on the job site where it will be exposed to risks.

Many contractors utilize GPS tracking devices and security camera systems to monitor the job site and equipment. These electronic advances help reduce the risk of crime but they are not perfect. Some criminals are just too smart for their own good. So, they can pull off a criminal heist without a hitch. All of this information should be documented in the contractual agreement. 

The Agency/Brokerage

Ultimately, there are many surety bond agencies in Canada. There is a good chance that you’ve worked with one or two in the past. Well, you have to understand that every agency is different in one way or another. Therefore, you cannot stick with the same company every single time. Doing so could result in your company paying too much for surety bonds. You have to remember that the prices can vary from one surety bond agency to another.

Therefore, it is in your best interest to shop around. If you’re able to find the right surety company, there is a good chance that you’ll get a better deal. This ensures that you’re going to be spending less to obtain the surety bonds that you need. This is crucial for your business. Failing to obtain cheaper surety bonds could put your company at risk of facing an untimely demise. Thankfully, you’ve found us. We can help. We have strong relationships with some of the best surety companies in Canada.

 

By working with us, you can guarantee that we’ll get you in touch with an excellent surety company in your area. Contact us immediately to get started!