surety bond
Closeup of employer showing his employee where to sign a contract, with a retro filter effect.

By Vic Lance

Opening a business is often accompanied by the requirement to obtain a surety bond. Yet, getting a surety bond happens only in return for certain financial guarantees that the applicant can provide.

To assess the risk involved in bonding an applicant, surety bond companies rely heavily on personal credit score. This can be a hurdle for applicants who have no previous credit history. But getting bonded without credit history is possible and not that difficult!

Read on to find out how you might be able to get your surety bond without credit history!

Why a Surety Bond?

Surety bonds are legally binding agreements between three parties:

  • The applicant wanting to open a business (or get licensed)
  • The state they want to operate in
  • The surety bond company that issues the bond.

These agreements are put in place to protect the state and the customers of the business in cases when the business violates state statutes and regulations.

If, as a result, someone suffers losses or damages, they can file a claim against the business’s bond and obtain compensation from the surety bond company that issued the bond. In return the business must then repay the surety company for its backing. If no claim is filed against the bond, the applicant doesn’t pay anything to the surety, apart from a premium in order to obtain the bond in the first place.

How high or low that premium is, is determined by surety companies on the basis of an applicant’s financial status. This is why personal credit score is so important for the surety bond application process – sureties use it to assess the risk involved in bonding an applicant and the likelihood of them repaying a potential claim. So what about applicants without credit history?

No Credit History? Now What?

Applicants who have no previous credit history are sometimes turned back by sureties, because they are considered high risk. For the purposes of bonding, having no credit is typically equated with having bad credit. Yet, there are other things applicants can do to convince their surety to issue a bond for them and at a good rate, too!

1. Present Strong Financials

Presenting strong and professional financial statements, that show you can handle your finances are one of the best ways to prove to the surety you are a reliable applicant. This includes the format of your statements which you can easily get right by consulting with an accountant (which gives you bonus points in front of the surety).

Having liquid assets to showcase or increasing your liquidity is also very important because it shows you have something to back your bond up with. You could, for example, collect any uncollected debts before applying, in order to increase your liquidity.

And if you have a home, you should mention that too. This means that you’ve been vetted by a bank, which provides you with further legitimacy in the eyes of the surety. Finally, presenting a good payment record on your mortgage or other long-term liabilities is another way to prove that you are reliable and stable.

2. Tell the Surety About Your Previous Experience

If you have previous experience in the industry you now want to start a business in, you should let the surety know. The longer you have worked in a particular field, and have made it, the more trustworthy you are considered. To the surety this will mean you have the skills that are needed to keep a business afloat and to manage difficult situations.

Even if your previous experience is borderline to the field you now want to enter, you should still inform the surety. Professionalism is a good asset, regardless of the field. So when you apply for your bond, consider including a resume and any other proof of experience that you have.

3. Apply for Citizenship

In the U.S., 40% of Fortune 500 companies are founded by immigrants or their children. Research has shown that immigrants are more than twice as likely to open a new business than native-born Americans, and that the impact of businesses started by immigrants on the U.S. economy is huge and growing.

If you are a non-native entrepreneur and want to start a business in the U.S. but need a surety bond, the likelihood of obtaining your bond increases if you apply for citizenship. Non-U.S. citizens are perceived as a greater risk due to their lack of ties to the country, and the difficulty of resolving claims that concern such people.

Applying for a citizenship sends the signal that you are committed to staying and are serious about starting a business and managing it. If you are in a rush and the citizenship application process will take too long, consider applying for any other sort of U.S. legal status and inform the surety about that.

4. Pick the Right Surety Agency

Your choice of surety bond agency also determines whether you will be offered a bond. Surety agencies work with the bond companies that provide the bonds. Some companies are strict about not working with applicants who have no previous credit history, while others are open to such applicants and forthcoming. Since bond companies don’t work with the public, you need to pick the agency that will give you access to the right companies.

When choosing your agency you should pay attention whether its surety partners are A-rated (or above) – a sign that they are considered highly financially stable and reliable. Making sure that your surety company is listed with the Department of Treasury (T-listed) is also important because this signals your surety has been carefully vetted and approved.

Surety companies that conform to these criteria will often be more flexible with applicants, and offer them a variety of bonding options. At the same time they are considered some of the best companies to work with.

Want to Know More About the Bonding Process?

Never gotten bonded before? Leave us a comment if you have any questions about the bonding process and we will gladly provide you with more information!

Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps business owners get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business. Follow him on Twitter: @Lance_Surety