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How To Be Qualified For A Surety Bond

A surety bond, which is also known as a performance bond, is issued for businesses and ensures that any obligation made to a third-party is fulfilled or said party will recover whatever is lost. Surety bonds, like most bond issues, tend to be quite large and therefore the issuing organization assumes more risk should the company which took on the debt go out of business or fail to meet financial obligations of the issuance. Due to the significant risk many precautions and a careful analysis is done in advance to insure the stability of the organization and its underlying assets.

More so than any personal loan, an organization which seeks a surety bond issuance will be thoroughly analyzed not only in terms of owners but also the performance record of the company. Any organizations, including banks or credit unions as well as third-party vendors and subcontractors, will be interviewed and consulted to determine whether or not the company conducts its business in an ethical and financially reliable manner. Owners and directors will have their accounts scrutinized and credit histories thoroughly examined which will provide clarification of character and fiscal responsibility. If any of the three major credit reporting agencies have any incorrect information it would be prudent to correct the errors and explain any black marks as it may negatively affect the ability to qualify for a surety bond.

Officers of the bond issuer may also examine various financial documents and records that the organization keeps to check for thoroughness and accurate record-keeping and compliance. Employees may also be interviewed, especially those in strategic financial positions, looking for any anomalies or other red flags which could pose a threat to the organization's ability to fulfill the bond terms.

The reason for all of this thorough analysis is due to the fact that most bond issuances are multiyear and for very large amounts. This type of debt isn't necessarily being issued against a single individual, which is what happens with mortgages are automobile loans, but actually against the financial health and stability of a going concern. It is of the utmost importance for that organization to be able to make interest payments on the bond debt to all bondholders for the duration of the bond issuance. As such, every possible rock is overturned and every nook and cranny is examined thoroughly to make sure millions of dollars are not wasted on a company that is likely to become financially insoluble at a later date.

Qualifying for a bond issuance is a major financial obligation and should be taken very seriously by all officers and owners of an organization. These types of bonds hinge on a company's ability to pay interest on a large debt for upwards of ten to twenty years so the more successful a company is with a lengthy history of proven performance, the more likely it will be to obtain a surety bond than a new company with no credibility or experience. The financial health and stability of the organization is the only thing that matters when looking to qualify for a surety bond.