Learn more about Alabama Surety Bonds
How do you get a surety bond in Alabama?
Surety bonds are legally binding agreements that ensure obligations are met. There are three parties involved in the contract:
- The principal: The party that must fulfill the obligation.
- The obligee: The party that needs a guarantee the principal will perform.
- The surety: The party that issues the bond to guarantee the performance of the principal. If the principal fails to meet the agreed obligations, the surety will pay out claimed losses up to the bond amount with the principal ultimately liable for those losses.
The process begins when the obligee informs you or your business a surety bond is required. You must then research the type of bond that you need and its specific requirements. From there, you will apply online for the bond through a surety company or agency.
The surety company will require you to provide personal and business information such as names, addresses, social security numbers, and employee identification numbers. Their underwriters will use this information to review your financial health to assess the risk of issuing you the bond.
After your application is approved, you will receive a surety bond quote with the bond premium (which is another name for the price of the bond and which varies depending on the amount of bond coverage you applied for). If you accept the quote, you pay the premium and the surety company issues you the bond.
Is a surety bond required in Alabama?
Alabama surety bonds are required across a variety of industries. There are two primary categories for these bonds; contract bonds and commercial bonds.
Contract Surety Bonds help project owners ensure that contractors perform their work properly. There are different types of contract bonds, including performance bonds which protect the project owner from financial loss if the contractor fails to perform in accordance with the agreement.
Contract Surety Bonds are most common in the construction industry but they are also used for janitorial services, transportation, and security services.
Commercial Bonds are often related to a specific license or permit and are required by the state of Louisiana and other municipal entities to ensure businesses comply with all necessary regulations. Some common license and permit bond types include:
- Motor Vehicle Dealer Bonds: The Alabama Department of Revenue’s Motor Vehicle Division requires a surety bond for auto dealers who sell used motor vehicles in the state.
- Contractor License Bonds: The City of Mobile and other municipalities require certain types of contractors to post a surety bond to provide assurance they will comply with laws relating to their field.
- Utility Bonds: These bonds provide financial assurance to companies like the Alabama Gas Corporation that a customer will pay for their utility usage on time.
- Mortgage Broker Bonds: The State Of Alabama requires surety bonds to guarantee mortgage brokers meet industry standards and comply with regulations.
- Freight Broker Bonds: These bonds are required by the Federal Motor Carrier Safety Administration (FMCSA) to legally operate as a transportation broker.
- Notary Bonds: The Alabama Secretary Of State requires surety bonds to ensure notary publics perform their function as an unbiased and impartial witness.
- Sales Tax Bonds: Sales Tax Bonds are required by the Alabama Department Of Revenue to ensure business owners comply with sales tax laws.
- Designated Agent Bond: The Alabama Department of Revenue Motor Vehicle Division requires certain professions to post a surety bond before conducting business in the state.
How much does a surety bond cost in Alabama?
Surety bond costs vary depending on the bond amount and the premium rate. The obligee sets the required bond amount and the surety determines your premium rate, which is the percentage of the total bond amount you pay as the premium.
Premium rates for surety bonds tend to range between 1% and 15%. When determining your premium rate, the surety company evaluates your credit history, financial statements, industry experience, and licensing history. The better your financial standing, the better rate you will receive. Bad credit can result in higher premiums and make it harder to secure certain bonds.
Below are the costs for some of the more popular surety bonds in the state of Alabama.
- Contractors License Bond: Various cities in the State of Alabama require contractors to post a surety bond to guarantee performance. The total amount for these bonds will vary depending on the county. EZ Surety can issue these bonds for a premium as low as $100, subject to underwriting.
- Motor Vehicle Dealer Bond: Auto dealers selling new or used motor vehicles are required by the Alabama Department of Revenue’s Motor Vehicle Division to post a surety bond of $25,000. EZ Surety can offer premiums for these bonds as low as $175.
- BMC-84 Freight Broker Bond: Freight brokers and freight forwarders are required by the FMCSA to post a $75,000 surety bond to receive a freight broker license. EZ Surety can issue these bonds for a premium as low as $938, subject to underwriter review.