How do you get a TX surety bond?
Surety bonds in Texas 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 Texas 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 Texas?
The state of Texas requires many surety bonds across a range 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 can also be used for janitorial services, transportation, and security services.
Commercial Bonds tend to relate to a specific license or permit and are required by the state of Texas and other municipal groups to ensure businesses comply with all regulations and codes needed to protect the general public. Some of the most common bond types in Texas include:
- Motor Vehicle Dealer Bonds: The Texas Department of Motor Vehicles (TXDMV) requires a surety bond to sell used or new motor vehicles in the state.
- Contractor License Bonds: These bonds are required by the Texas Department of Licensing and Regulation to ensure that a contractor complies with laws relating to their field.
- Vehicle Title Bonds: Title bonds are required by the TXDMV or the Texas Department of Transportation in situations where a vehicle’s title is lost or defective.
- Freight Broker Bonds: These bonds are required by the Federal Motor Carrier Safety Administration (FMCSA) to legally operate as a transportation broker.
- Tax Bonds: Tax bonds are required by the Texas Comptroller of Public Accounts to ensure business owners comply with sales tax laws.
- Mortgage Broker Bonds: The Texas Department of Saving and Mortgage Lending requires Insurance Broker Bonds to guarantee industry standards and regulatory compliance.
- Alcohol Bonds: The Texas Alcohol Beverage Commission requires surety bonds to ensure that businesses licensed to sell alcohol comply with regulations.
How much does a surety bond cost in Texas?
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 Texas.
- Texas Motor Vehicle Dealer Bond: Auto dealers selling motor vehicles are required by the TXDMV to post a surety bond of $25,000. EZ Surety Bonds can offer premiums for these bonds as low as $350, issued instantly.
- Texas Alcohol Beverage Commission Bond: Retailers without a Food and Beverage (FB) Certificate must post a $5,000 conduct surety bond. 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 in Texas, subject to underwriter review.