How do you get a RI surety bond?
Surety bonds in Rhode Island 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 in Rhode Island 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.
Who needs a surety bond in Rhode Island?
Rhode Island 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 Rhode Island 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 Rhode Island Division of Motor Vehicles requires a surety bond for auto dealers who sell used motor vehicles in the state.
- Contractor License Bonds: The Rhode Island Contractors’ Registration and Licensing Board requires certain types of contractors to post a surety bond to provide assurance they will comply with laws relating to their field.
- Court Bonds: Local courts throughout the State of Rhode Island require certain individuals who serve as a fiduciary to post a surety bond.
- Freight Broker Bonds: These bonds are required by the Federal Motor Carrier Safety Administration (FMCSA) to legally operate as a transportation broker.
- Loan Lender and Broker Bonds: The State of Rhode Island Department of Business Regulation requires lenders to post surety to provide financial protection to consumers wronged by a mortgage transaction.
- Certificate of Title Bonds: These surety bonds help new vehicle owners obtain a certificate of title to prove vehicle ownership to the State of Rhode Island Division of Motor Vehicles.
- Utility Bonds: These bonds provide financial assurance to companies like National Grid that a customer will pay for their utility usage on time.
How much does a surety bond cost in Rhode Island?
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 Rhode Island.
- Rhode Island Alcoholic Beverage Bond: The State Of Rhode Island requires a $2,500 surety bond from businesses licensed to sell liquor in the state. EZ Surety can issue these bonds for a premium as low as $100.
- 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.