What are the advantages of surety bonds over certified cheques?
The personal guarantees required by the insurance company that issues the bond are the same as those required by your financial institution. The bonding service fees are approximately the same as those for a certified cheque.
- Bonding increases the credibility of your company, as it attests to your excellent financial situation.
- Bonding allows you to use the full operating line of credit granted by your financial institution.
- Bonding binds you to the surety, which gives you access to professional advice from lawyers, accountants, estimators and engineers.
- Bonding allows you to protect the confidentiality of your activities.
- Bonding provides protection in the event of unwarranted claims. Disputes are often based on contract interpretation.
- In situations where the surety assumes responsibility as general contractor following a legitimate claim, it often happens that the surety will decide to use the defaulting contractor to complete the project.
- Bonding has the advantage of increased leverage. By rapidly informing the surety of tender results, the contractor can submit more tenders, leading to more contracts.
- Certified cheques do not establish your financial ability to assume responsibility for a contract.
- The financial institution normally deducts the amount represented by the certified cheque from the total operating line of credit.
- The financial institution does not have the expertise in your line of business to provide you with advice.
- Using certified cheques allows the bank to know how many tenders you submit and for what amount.
- Certified cheques are an irrevocable and unconditional guarantee that the client can exercise at his or her discretion.
- With certified cheques, it is unlikely that the client will come to an understanding with the contractor to complete the work.
- As long as the certified cheque is not returned to the financial institution, further funds are not available to the contractor for other contracts, as the credit margin will be insufficient.