How Much Does a $25,000 Surety Bond Cost?

If you want to become a business owner, you will need to meet numerous requirements before you can begin your business operations. Among the numerous other tasks you will need to do, you might also have to secure a license to operate your company legally.

For example, car dealerships require the owners to get an auto dealer license in most states. You might also learn that your business license carries bond requirements. Hearing that you need to purchase a $10,000 surety bond might make you concerned about its prohibitive cost.

However, the bond cost will not be the full $10,000. Your surety bond cost will be a percentage of the total amount of the bond based on your credit history and other factors. Here is what you should know about the cost of a $10,000 surety bond and what you might expect to pay.

Your surety bond cost will be a small percentage of the total bond amount. The surety bond rates are determined during the bonding process after you apply for a surety bond through a bond company or insurance company.

The surety company will need some information about you and your business, including your business name and phone number, your profit and loss statements, credit and bank references, and others. Once you submit your online application, the surety company will complete an underwriting process and evaluate a variety of factors. Underwriting will include a credit check of both your business and personal credit score and an evaluation of your business's finances and stability.

If the surety company assesses you as posing a minimal risk because you have good credit, your bond price might be as little as 0.75% to 1.5% of the surety bond amount. By contrast, if you are determined to pose a higher risk based on the results of your credit report, you might have to pay up to 10% of the total bond amount.

Once your bond application is approved, the surety company will provide you with a free quote for the surety bond premium. If you accept the bond quote, you will pay the premium and sign an indemnity agreement with the surety company, and agree to pay any valid bond claims in full. The total amount of the bond is known as the penal sum and is the maximum amount the bond company might pay for a bond claim.

However, you will be required to fully repay the surety if that occurs. The surety company will then prepare a bond form and send it to the licensing body to show that you have purchased the required bond.

Your credit score is one of the most important factors in securing a bond. Here are some ballpark estimates of surety bond rates for people with different credit scores:

• 700 and higher - $75 to $150 (0.75% - 1.5%)
• 650 to 699 - $100 to $250 (1% - 2.5%)
• 600 to 649 - $250 to $500 (2.5% - 5%)
• 599 and below - $500 to $1,000 (5% - 10%)

Your bond cost might be different than the estimates listed above based on other factors the surety company will consider during the underwriting process. You can get a free quote by submitting your online application.

If you have poor credit, you might be concerned about your ability to be bonded. While it's true that some surety companies refuse to underwrite bad credit bonds, you can still get a bond by going through a bad credit program.

You might be asked to submit supporting documents to demonstrate your company has enough available capital to pay for any bond claims while continuing to operate. While you'll have to pay a higher rate to get a bad credit surety bond, you can work on improving your credit to try to get more favorable rates in the future.

Different states and cities have varying bond requirements. While you might have to post a $10,000 bond to work in one city or state, the cost could be higher or lower in a different area. Some types of surety bonds that might require you to post a $10,000 total bond amount include the following:

• Auto dealer bonds
• Contractor license bonds

Having to post a $10,000 surety bond is not as onerous as it might initially sound. You won't be expected to pay $10,000 up front for your bond and will only have to pay a small percentage. Once you are bonded and licensed, make sure to comply with all regulations and laws and work to build your credit. Doing so can help you to avoid bond claims and secure better bond rates when it's time to renew your bond.