Surety Practice

Put simply, when one company (Principal) enters into a contract to supply another company (Beneficiary) with a product or service, it is to the benefit of the Beneficiary/Employer to have a Guarantor to that contract. If, for any reason, the Principal cannot fulfil its obligations, the Beneficiary is protected up to the maximum bond amount.

By providing a Surety Bond, it helps to show that the business is in a financially sound position and enables business dealings by fulfilling the Beneficiary's security requirement. If something goes wrong and the Principal defaults on their obligations, the Beneficiary can recover their losses up to the maximum bond amount from the Guarantor via the bond.

Surety Bonds are an often necessary security arrangement, but they can also be an aid to growth:

• A Surety Bond can operate alongside and does not impact your traditional banking lines of credit

• Surety Bonds are intended to act on an unsecured basis, rather than taking security over a company’s assets

• Sureties have a zero cash/collateral approach providing cash flow advantages

• Sureties can provide alternative wordings that have the ability to provide greater protection to the Principal of the underlying contract conditions

Having bonds issued via a Surety rather than a Bank allows you to enhance liquidity by freeing up funds for working capital, and tender with confidence for additional contracts. As an alternative to Bank Guarantees, Surety Bonds often have lower base rates and no (non)utilisation or line fees.