Financial Guarantee Bonds
Financial Guarantee Bonds Overview
Financial Guarantee bonds are a general type of surety bond. Financial guarantee bonds do what the name suggests – they guarantee payments on a financial obligation. These bonds come in many forms, from tax bonds to commercial lease agreement bonds. With financial guarantee bonds the surety is essentially providing a potentially quicker path of recourse if the party with the obligation to pay does not do so satisfactorily. When a claim is placed on a financial guarantee bond, the surety would then be responsible to make payment to satisfy their responsibility to the bond. After a surety pays a claim on a bond the surety then attempts to recoup the loss from the bonded business or individual. A surety bond works more like a credit line rather than an insurance policy. Even if a surety pays out on a claim the bonded business or individual is ultimately responsible for the amount paid out by the surety. This makes it more of a three party contract than an insurance policy. The fact that the bonding company will ultimately seek full restitution from its client for any money it pays out on behalf of that client is a key difference between an insurance policy and a surety bond.
A typical type of financial guarantee bond is generally classified as a Sales Tax Bond. These bonds provide a guarantee to the taxing authority that the amount collected for sales tax on taxable goods will be remitted to the state or local government. A typical user of this type of bond is a fuel or oil distributor that is retailing gas at the pump. The bond amount in this situation is typically based on an average monthly sales tax calculation as determined the state the retailer (or parent company) is in. Often the oil distributor posts an irrevocable letter of credit to meet the various states’ requirement for this guarantee. It is most often extremely advantageous to post a Surety Bond in lieu of an irrevocable letter of credit in many instances. AllStates Bonding has successfully worked with many states in the USA on behalf of its clients to get them to accept surety bonds in lieu of letters of credit.
These types of bonds vary greatly as far as their underwriting requirements and various pricing models. AllStates Bonding is an established and long time issuer of financial guarantee bonds. Please reach out to one of our specialists at 877-388-2663 (BOND) to discuss your financial guarantee bond needs.