How can surety bonds benefit a small businesses? | ABF

Date 29th January 2020 //
Author Fiona Recker, Joint Managing Director, DRS Bond Management
DRS Bond Management & Alternative Business Funding
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Surety bonds & related products are of increasing importance to organisations needing to provide performance guarantees. They strengthen your client relationships and provide peace of mind for your clients...

How can surety bonds benefit a small businesses?

In this article ABF and DRS Bond management have teamed up to give you the rundown on Surety Bonds and how they can help your business.  Small businesses benefit from surety bonds as an alternative to bank guarantees.  Sometimes these bank guarantees can be an expensive part of your business finance setup.  A surety bond helps you cut back on this business expense.  Read on further to find out more.

What are surety bonds?

A surety bond is a form of insurance premium which involves 3 parties.  These parties are:

The obligee 

The Obligee is the person who is the recipient of the obligation.  They will usually be owed something from the principal such as an invoice or the completion of a service for example.

The principal 

This is the person who will actually perform the contractual obligation and they are the primary party.  They are the party that have agreed to carry out the task for the obligee.  This could include paying an invoice or completion of a service.

The surety

This is the person or company responsible for ensuring that the the principal can perform the task they have said they can.  If the principal fails to carry out the task or pay the debt the surety will step in and cover any costs to the obligee.


Benefits of surety bonds

Surety bonds provide a level of protection for the obligee in case the principal cannot meet expectations / promises made.  Some added benefits of having these in place include:

Increase of trust between supplier and customer

Having in place a surety bond gives your clients / customers a sense of protection if the unexpected happens.  This can often strengthen your client relations as everyone feels they are covered in the event that promises cannot be kept.

Visibility and timings

Having in place a surety bond means that all timescales for completion and payment schedules need to be clearly documented.  Having this legal document in place ensures that your clients are under no illusion of when the completion of services or payments will happen.   Having this clearly presented means all parties get a clearer picture on timescales.

Benefits extend beyond the main 3 parties

Having a surety bond in place doesn't just protect the main 3 parties.  Particularly regarding construction projects, a surety bond ensures that everyone from labourers to suppliers can expect payments to be covered when the principal says they will be.

Ensures quality of services

Principals who take out surety bonds often are required to go through a strict qualification criteria in order to be approved.  The insurer issuing the surety bond will only do so if they feel confident that the principal is financially secure enough to meet all of their obligations.  This often provides a level of comfort to obligees insomuch as they know the principal has undergone some sort of pre vetting in order to gain the surety bond in the first place. 

Where to buy surety bonds

Many different sizes and types of businesses need to provide performance bonds for the contracts they win. More often than not, companies need to find 100% collateral for a supporting bank guarantee. That ties up a lot of working capital.

Bank guarantees are not core business for many banks. DRS' approach is to offer surety alternatives to bank guarantees, to produce a 'win/win/win' outcome for banks, businesses and their customers.

Sureties are provided by selected, specialist, leading UK financial institutions, who will, subject to the adequacy of a balance sheet, issue bonds without collateral, or at a much lower level of collateral, at equitable cost compared to the banks.


Alternative Business Funding and DRS Bond Management

DRS Bond Management is receiving unprecedented levels of interest as more and more businesses are switching to the surety alternative to bank guarantees. Over the past 12 months business written has increased by 30%.

We are committed to significantly raising the awareness of the surety alternative to companies being cash-crippled by the requirements of bank guarantees. Banks and companies welcome alternatives to bank guarantees with open arms and portals like have the potential to revolutionise the lives of companies who have to supply performance bonds and other forms of contract guarantee bonds.

If you need to provide Performance Bonds, make DRS your first port of call. It could transform your cash situation very quickly.

DRS Bond Management

Alternative Business Funding are always with you on your business journey.  We provide support and advice on any number of business related scenarios.  Wether you need assistance with Business loans or other forms of business finance, feel free to get in touch with us today and we'll help in any way we can!

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Find your business

Enter a funding amount between £500 and £50,000,000.
Please indicate what you need the funding for.
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