A surety bond involves a promise from one party to take the responsibility for a debt obligation of a borrower if the borrower defaults. With State Farm, you will be able to buy surety bonds. Usually, the cost of the surety bonds through State Farm is more or less the same as buying from other surety carriers. You should keep in mind that the actual cost of surety bonds depends on many factors like the type of bond, the financial strength of the principle, and many more.
- A surety bond act as a financial guarantee between government entities and the general public
- Surety bonds are mostly required for businesses or professionals who provide various services to customers
- Usually, the cost of a surety bond is between 1% and 15% of the bond amount
- The cost of surety bond depends on the credit score and the type of application
- Surety bonds with higher risks have more premiums and they are more costly than low-risk bonds
What are Surety Bonds?
A surety bond is a type of bond that includes a three-party agreement and legally binds together three parties—the principal, the oblige, and the surety. Basically a surety bond act as a financial guarantee between government entities and the general public. If the bond’s requirements are not met then a claim might be filed against the bond. You can consider a surety bond with a credit to the principal. If you buy a surety bond then you will be obligated to provide a bond as part of a business license or contract requirement. Some key advantages of Surety bonds are –
- Non-Asset Collateral
- Lower Costs
- Increased Capital
- Claim Investigation
- Attract new business
- Potential clients will know that they are protected by a bind, etc.
Why You will Need a Surety Bond?
Surety bonds are mostly required for businesses or professionals who provide various services to customers. Surety bonds ensure that the business or the professional will do their work according to the laws and other regulations stated in the license. Below are some common reasons you will need a Surety bond –
- You need a surety bond to guarantee payment for state sales taxes or utility bills of your business
- If you are an estate administrator or executor then you will need bonds to make sure that you will faithfully execute your duties
- It is required for notary publics to post bonds (in most States in the USA)
How Much Does a Surety Bond Cost?
Usually, the cost of a surety bond is between 1% and 15% of the bond amount. For example, if you want to buy a $10,000 surety bond policy then you might have to pay a fee between $100 and $1,500. The cost depends on your credit score and based on your application, but there are some surety bond policies that are written freely. It means you can buy them with fixed fees without checking your credit score. For example, the California Legal Document Assistant Bond has a fixed premium and it will last for 2 years.
You should keep in mind that bonds with higher risks have more premiums and they are more costly than low-risk bonds. If you want to buy a high-risk bond but if your credit score is poor then the premium of the bond could be as high as 20% or more. Almost all surety bonds have a term of one year. But there are few bonds with a term year of two years or more.
Surety Bond Cost Estimate Based on Credit Score
|Surety Bond Amount||Excellent Credit(675 and above)||Average Credit(600-675)||Bad Credit(599 and below)|
|$10,000||$100 – $300||$300 – $500||$500 – $1,000|
|$15,000||$150 – $450||$450 – $750||$750 – $1,500|
|$20,000||$200 – $600||$600 – $1,000||$1,000 – $2,000|
|$25,000||$250 – $750||$750 – $1,250||$1,250 – $2,500|
|$30,000||$300 – $900||$900 – $1,500||$1,500 – $3,000|
|$35,000||$350 – $1,050||$1,050 – $1,750||$1,750 – $3,500|
|$40,000||$400 – $1,200||$1,200 – $2,000||$2,000 – $4,000|
|$50,000||$500 – $1,500||$1,500 – $2,500||$2,500 – $5,000|
|$75,000||$750 – $2,250||$2,250 – $3,750||$3,750 – $7,500|
|$100,000||$1,000 – $3,000||$3,000 – $5,000||$5,000 – $10,000|
What Factors Impact the Price of a Surety Bond?
There are quite a few factors available that impact the price of a surety bond. If you have an excellent credit score and professional experience then you have to pay less to buy a surety bond. That being said, below are the factors that affect the price of various surety bonds –
- Type of surety bond you need
- Bond coverage amount required
- Your credit history and score
- What regulatory authority needs the bond
- The bond provider you work with
- The State where you live or operate your business
- Total year of experience you have in the profession
- Your claim history for previous bonds
Types of Surety Bond
There are various types of surety bonds available. Some most common types of surety bonds are –
- License and Permit Bond
- Public Officials Bond
- Probate Bonds
- Other Types of Surety Bonds
- Contract Performance Bond
1. License and Permit Bond
You might need this type of surety bond to get a business license in a given city, county, or state. This type of license ensures that you keep your business and work within the state and municipal laws. Types of license and permit bonds you may need:
- Electrician’s license bond
- Plumber’s license bond
- HVAC contractor’s license bond
- General contractor’s license bond
- Driveway permit bond
- Sign permit bond
2. Public Officials Bond
Institutes or offices that handle public funds need a bond to ensure that they are faithfully and honestly performing their duties and they will provide service within the state and municipal laws. This type of bond are needed for –
- Tax Collectors
3. Probate Bonds
If you are appointed as an administrator, executor, guardian, etc. then you will need probate bonds before executing your duties. This type of bond ensures that you perform your duties faithfully and within the laws. Some common types of probate bonds are –
- Administrator bonds
- Executor bonds
- Guardian bonds
- Conservator bonds
- Trustee bonds
4. Contract Performance Bond
If your business is construction or real estate related then you will need this type of bond. Contract performance bonds ensure that the contractors or project managers are doing their duties loyally and they will also meet the requirements of the contract. Some common Contract Performance Bonds are –
- Bid Bonds
- Performance Bonds
- Payment Bonds
5. Other Types of Surety Bonds
Other important types of surety bonds are –
- Tax bonds
- Utility bonds
- Lost security/lost instrument bonds
- Union wage and welfare bonds
FAQs about How much Do Surety Bonds Cost through State Farm
Can You Get a Surety Bond with Bad Credit?
Yes, you can get a surety bond with bad credit. But you should keep in mind that if your credit score is low then you will be in a higher-risk category. Therefore, you have to pay more fees for the surety bond.
Do you pay surety bonds monthly?
No, you don’t have to pay the surety bond every month. You have to pay a one-time payment according to the terms of the surety bond. Most of the surety bonds have one year term while a few surety bonds have a 2-3 years term.
Does a surety bond affect your credit?
Usually, surety bonds don’t affect the credit score. However, you should keep in mind that if you buy large surety bond amounts or if you fall in the higher risk category then it might affect your credit score.
How much does it cost to get a $15,000 bond?
The answer to this question depends on how good is your credit score. If you have an excellent credit score like 675 or higher then a $15,000 surety bond will cost you $150 – $450. On the other hand, if your credit score is 600-675 then it will cost you $450 – $750. On the other hand, if your credit score is 599 or below then it will cost you $750 – $1,500.
Last Updated on November 4, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.