Surety Bonds
Surety is a promise by one party (Insurer) on behalf of another party (Contractor) to pay another party (Beneficiary). It is an unconditional and on-demand instrument used widely by Governments both Federal and State, institutions and major private business to ensure that contractual obligations are met.
Surety bonds are used as a substitute or alternative to bank guarantees from banks. In comparison to bank guarantees or retentions monies, a bond facility is unsecured with no tangible security or cash collateral required compared to a banks’ secured position which uses up bank lines of credit.
The facility is then drawn down on by the contractor.
A surety bond provides a financial guarantee to the obligee, and, means that if the Principal break their agreement and does not meet the performance agreed, an amount will be paid by the Surety company. It is important to note, the Surety company will have the right to recover funds from the Principal.
There are different types of surety bonds, which can be summarised as below:
Typical industry sectors which secure bonds, are firms participating in the following space:
- Construction
- Engineering
- Energy
- Mining
- Project Finance
- Infrastructure
- Telecommunications
We generally see insurers having a minimum revenue requirement before offering bonds. This has been decreased in recent years.
We generally see these minimum requirements being
- Typically a turnover in excess of $20 million
- Must have a minimum net tangible worth of $1m
- Strong industry experience, track-record and reputation
- Positive cash flow
- Positive working capital
To obtain indication terms the following as a minimum is required
- Audited Consolidated Accounts for the past 3 years
- Organisational structure
- Corporate Tree – drilling up to the ultimate stakeholders (Inclusive of any Unit or Discretionary Trusts and ultimate Beneficiaries / unitholders)
- Signed Asset and Liability Statements from the Principal Shareholders.
Business Insurance Specialists has access to all the major surety insurance company providers in Australia with experience in the market.
For a no-obligation quotation for your surety programme, contact us today or complete our online forms for immediate action.