Surety Bond Rates Explained: How to Get the Best Deal

When it comes to securing surety bonds, many business owners, especially contractors, are primarily concerned about the cost. How much does this bond cost? Why do rates change so much? More than that, how can I get the best rates for a surety bond? This article will go into great detail about what surety bond rates are, what affects them, and how to get the best deal.

What Is a Surety Bond and Why Do You Need it?

A surety bond is a three-party agreement between a business (the principal), a bond provider (the surety), and the project owner or government entity (the obligee). These bonds make sure that the principal will do what they agreed to do. For example, finish a project, pay their providers, or take care of other business duties.

Contractors who want to take on public works projects or high-value private jobs need to have surety bonds. You could miss out on good jobs or get fined if you don't have the right bond.

Read more: Navigating Construction Surety Bonds: Types, Costs & Coverage Detail

How Are Surety Bond Rates Calculated?

Surety bond rates aren’t one-size-fits-all. These rates depend on several factors related to the principal’s financial standing, experience, and even the specific bond type. Here are a few key factors that influence construction bond rates:

1. Credit Score – One of the biggest influencers on your surety bond rates is your personal and business credit score. The higher the credit score, the lower the bond rate. Contractors with strong credit typically receive the best low cost surety bonds offers.

2. Business Financials – Sureties want to make sure that your business is financially stable. They will look at your debt-to-equity ratio, financial statements, and general financial health. To show that your business is a low-risk option, you need to keep correct financial records through good bookkeeping and accounting.

3. Experience – A well-established contractor with a proven track record of completing projects on time and within budget is likely to get better bonding requirements compared to a new business owner just starting in the industry.

4. Type of Bond – Some bonds are riskier than others. For instance, performance bonds for large construction projects will have higher rates compared to smaller commercial bond rates

5. Bond Amount – Surety bond premiums are typically a percentage of the bond amount. Larger bonds will naturally result in higher costs, but you can still secure low-cost surety bonds by focusing on other factors that influence your rate.

Read more: How To Estimate Your Performance Bond Costs in Construction

Example Surety Bond Rates by Type

To better understand how these factors influence rates, let’s take a look at some common surety bond types and their average rates based on credit score. The bond rate is expressed as a percentage of the total bond amount, which you are required to post.

Credit Score	Auto Dealer Bond	Freight Broker Bond	Mortgage Broker Bond	Tax & Utility Bond	License Bonds (Avg.)
700+	0.75% – 1.5%	1.25% – 3%	0.5% – 1.25%	1% – 3%	0.75% – 1.5%
650-699	1% – 3%	3.5% – 5%	0.75% – 1.5%	2% – 5%	1% – 2.5%
600-649	2.5% – 5%	7.5% – 10%	2% – 5%	15% – 17%	2.5% – 5%
550-599	5% – 7.5%	10% – 12%	5% – 7.5%	15% – 17%	5% – 7.5%
Below 550	7.5% – 10%	12% – 13%	5% – 10%	15% – 17%	5% – 10%

As you can see, surety bond rates vary widely depending on your credit score and the type of bond. The higher your credit score, the lower the percentage of the bond amount you’ll have to pay.

License Bonds vs. Contract Bonds: What’s the Difference?

There are many different types of bonds, but two of the most common categories are license bonds and contract bonds. Understanding how these bond types differ is very important when you calculate your bond rate.

• License Bonds: These bonds are required when licensing your business in certain industries, such as construction, auto sales, or mortgage brokerage. License bonds typically pose less risk to the surety because the bond amounts are smaller, and the bonds are more straightforward. As a result, the process of getting a license bond is usually quicker, and the bond rate tends to be lower.

• Contract Bonds: These bonds, such as performance bonds or bid bonds, are required when a business enters into a contract, usually in the construction industry. Contract bonds are considered riskier because they cover larger projects with higher bond amounts. The process for securing a contract bond is more detailed and complex, often requiring a deeper look into your financials, and the rates are typically higher as a result.

Tips to Get the Best Deal on Your Surety Bond

Securing a lower bond rate can save your business significant money in the long run. Here are some practical tips to help you get the best deal on your bond:

1. Improve Your Credit Score: Since your credit score has a big impact on your bond rate, work on improving it before applying for a bond. Pay down any outstanding debt and avoid taking on new credit.

2. Provide Strong Financials: Ensure that your business’s financial statements, including balance sheets and income statements, are in good shape. Sureties like to see a stable financial track record.

3. Choose the Right Bond Type: Different bonds carry different rates. If possible, apply for bonds that are perceived as less risky, such as license bonds, rather than higher-risk contract bonds.

4. Shop Around: Not all surety companies offer the same rates. Get quotes from multiple providers to find the most competitive offer.

5. Partner with an Experienced Surety Bond Agent: You can get a better deal if you work with an agent who knows your business and has connections with more than one security company. 

Common Questions About Surety Bond Rates

1. How Can I Find Out What My Surety Bond Rate Will Be?

The easiest way to estimate your bond rate is by using a construction bond rate calculator. Many surety bond providers offer online calculators that can give you an instant estimate. Be prepared to enter information like your credit score, bond amount, and business details.

2. How Do I Get Approved for a Surety Bond?

Approval for a surety bond largely depends on your financial strength and creditworthiness. Most sureties require a thorough review of your finances before issuing a bond. If you work with an accounting and bonding service, you can make a strong financial case that gets things approved faster.

The Role Of Accounting and Bookkeeping 

When you ask for a surety bond, it's very important to keep clean and correct financial records. Surety companies often review your financial statements to assess the risk of issuing a bond. Well-organized accounting records not only reflect your financial health but also speed up the bond application process and help you secure lower rates.

At Construction Cost Accounting (CCA), we specialize in providing construction bookkeeping services that can help you maintain the financial stability needed to get bonded at the best rates. From tracking cash flow to preparing financial statements, our services can strengthen your bond application and save you money in the process.

Ready to Secure the Best Surety Bond Rates

If you’re looking for a surety bond and want to ensure you’re getting the best rate possible, it’s crucial to have your finances in order and to work with an experienced surety agent. At CCA, we can help you make your money management easier, which will give you the best chance of getting good rates. Get in touch with us right away to find out more about how our financial services can help your company.