The number of contractors taking up surety bonds has been on the rise over the last few years. Surety bonds are quickly replacing the various financing options that have been in the market over the years. Nowadays, agents prefer surety bonds to bank guarantees and letters of credit. The increase in number of bonds held can be attributed to the numerous benefits that come with the bonds. A Surety bond in Los Angeles can be obtained from various bond issuing companies and here are some of its benefits.
Surety bonds are cheaper than the other financing options. Contractors are only expected to pay a premium to the bond providers, which is usually lower than the interest charged by other institutions. In addition, the contractor has an option to secure credit from other financing institutions because the assets are not tied to the bonds. Most financing institutions require the contractor to have enough collateral. The lack of sufficient collateral makes it difficult to secure capital at low interest rates.
Bonds guarantee that the contractor will receive payment from the customer once the project is completed. The issuer adds some clauses that require both parties to satisfy their contractual obligations. Unlike other financing options, failure to satisfy the obligations stated under surety bonds attracts penalties that are legally enforceable.
Another benefit is that there are many contract types available. Contractors, therefore, have an option to choose from the extensive ranges which include commercial, residential engineering, civil and mining projects. Therefore, it provides an opportunity to all contractors to purchase an option that suits their needs.
Fortunately, you do not require any collateral to purchase bonds. The alternative financing options require a contractor to have tangible assets in order to get the required funds. Bonds, on the other hand, do not require an asset from the contractor. Instead, the contractor is expected to pay premium as compensation for the risk transferred to the issuer.
Bonds can help the contractors to secure other jobs. This is because the financial status of the contractor is reviewed independently by an issuer who is a third party. Research has shown that most customers develop confidence in contractors whose financial status has been verified.
Bonds provide contractors with the freedom to make bids on new projects. The bond issuers help in providing timely certifications in order to answer any questions that may arise. The issuers do not limit the number of projects that the contractor should undertake due to financial limitations. On the other hand, banks and other financial institutions may limit the number of projects that the contractor may bid if they significantly increase the risk.
A contractor requires the assistance of a reliable partner in order to deliver the project on time and within the budgetary constraints. A letter of credit is not sufficient to fund huge projects and as a result, the work may stall indefinitely. Financial institutions need to embrace this innovative method that ensures that everybody is happy at the end of the project. This innovation translates to better customer satisfaction and more projects that will work to your advantage.
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