Unless if you were working in the construction industry as a contractor, you will never know that there is a delicate balance between a performance bond and a payment bond. What is a performance bond and what is a payment bond? Read below to know.
Unlike other bonds that promise a profit to investors, a both the performance and payment bond are basically assurance bonds that a general contractor has to have in order to proceed with a project. The former, the performance surety bond, is issued to the project owner just in case the contractor is unable to complete the project for whatever reason. The latter, the payment bond, is for the suppliers, subcontractors and workers. It assures them that they will be paid no, matter what happens, even if the general contractor does not get paid for the project.
Both types of bonds are actually required by the law. For projects that are worth over $100,000, the general contractor must provide a performance bond and for projects that are worth at least $35,000, a payment bond must be provided.
If you are a general contractor and have done projects in the past, then you already know where to get your bond. But for those who are new to the business, you will see that there are many companies that provide both surety bonds. The only thing you need to do to easily find them is by doing a quick search on Google. Just type in the name of your local area plus the words “surety bond”.
Although all companies that are relevant to the search provide the same type of product, you will see that not all of them are created alike. You will see that there are companies that are actually picky and will not do business with contractors that are new or have less than financial standing or have low credit scores. But this is really understandable when you consider that they will be taking a significant amount of risk dealing with so-called untested companies.
If you are one of these untested companies, you do not need to worry because there are actually surety bond companies out there that cater to establishments like yours. They do not care that you have a low credit score or that you have a blank sheet in terms of financial performance. They have other ways of checking you will not renege on your contractual obligations for whatever reason.
When dealing with these surety bond companies, you do need to pay a higher price. While the picky providers charge less than ten percent of the total project cost, these generous providers could charge ten percent or more just for helping you comply with the law.
In any case, if you are serious about your business, though, you have to deal with the high cost. But, of course, this should not stop you from checking out different providers and asking for a quote on their prices.