Saturday, February 21, 2015

Importance Of Purchasing A Surety Bond In Los Angeles

By Olivia Cross

The number of contractors taking up surety bonds has been on the rise over the last few years. Surety bonds are quickly replacing the various financing options that have been in the market over the years. Nowadays, agents prefer surety bonds to bank guarantees and letters of credit. The increase in number of bonds held can be attributed to the numerous benefits that come with the bonds. A Surety bond in Los Angeles can be obtained from various bond issuing companies and here are some of its benefits.

Surety bonds are cheaper than the other financing options. Contractors are only expected to pay a premium to the bond providers, which is usually lower than the interest charged by other institutions. In addition, the contractor has an option to secure credit from other financing institutions because the assets are not tied to the bonds. Most financing institutions require the contractor to have enough collateral. The lack of sufficient collateral makes it difficult to secure capital at low interest rates.

The bonds guarantee that the client will pay the agent once the job is complete. Other financing options help you secure funding to undertake a project but do not guarantee payment. This limitation may hinder service providers from planning their work in advance since it takes its toll on their liquidity. On the other hand, bonds will commit the customer to make payments when the project is completed. Moreover, they impose penalties to the customer in case of failure to comply with the terms of contract.

Another benefit is that there are many contract types available. Contractors, therefore, have an option to choose from the extensive ranges which include commercial, residential engineering, civil and mining projects. Therefore, it provides an opportunity to all contractors to purchase an option that suits their needs.

Bond issuing companies do not require tangible assets as collateral. In most cases, banks and other financing institutions will require contractors to provide physical assets as collateral so that they may qualify for financing at lower interest rates. Providing company assets as collateral limits the ability of the firm to secure financing from other financial institutions. Companies that issue the product provide contractors an opportunity to secure funding in order to undertake various projects.

Securing new contracts is not easy. It requires some recommendation and guarantee that the project will be undertaken. In most cases, financing options like the letter of credit may not guarantee the project owner that the project will be undertaken. Bond companies on the other hand provide unconditional guarantee to the project owner that the contractor will be able to complete the task. Therefore, purchasing surety bonds is a quicker way of securing contracts from various customers.

Bond issuing companies encourage the agents to make unrestricted bids. Most financial institutions impose restrictions on contractors, making it difficult for them to secure new projects. The restrictions could be direct, like restricting clauses in the contractual documents or indirect, through tedious processes to secure financing. On the other hand, the financiers give the contractors the freedom to submit many tenders in order to help them secure new jobs.

A contractor requires the assistance of a reliable partner in order to deliver the project on time and within the budgetary constraints. A letter of credit is not sufficient to fund huge projects and as a result, the work may stall indefinitely. Financial institutions need to embrace this innovative method that ensures that everybody is happy at the end of the project. This innovation translates to better customer satisfaction and more projects that will work to your advantage.

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