What are Bonds and Insurance Guarantees?
Bonds are not actually a form of insurance but are closely related and sometimes referred to as bonds insurance. Bonds are commonly taken by construction companies as a requirement of their contract or as part of their tender. Bonds are also used as guarantees by suppliers and tenants.
Bonds are available from some banks, but they generally come at the expense of your overdraft, therefore restricting cash flow and working capital, so it can be advantageous to get them from a broker.
What types of bonds are there?
There are various kinds of bonds available, most of which are designed to give a financial guarantee that an agreement will be fulfilled or a financial penalty paid. At Sutcliffe & Co, the most common types of bond we see are:
These secure the performance of a contract or contractual obligation, normally covering 10% of the contract value.
Advance Payment Bonds / Guarantee Insurance (construction insurance)
Sometimes referred to as construction bond insurance, these guarantee to an employer that, in the event of a breach of contract by the contractor, payment made before the contract commenced can be recovered under the bond, less any amounts certified under contract.
These allow the employer to release retained monies held under a contract to the contractor to help with the contractor’s cash flow.
Tenant Default Guarantees
This can be used to reassure landlords that their tenant will not default on their rent; it will also give tenants an alternative to a large rent deposit on a property.
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