The cost you pay for surety bonds is usually calculated as a percentage of the overall bond amount. In the majority of cases, the percentage rate is set between around 1% and 5%, based on the principal’s finances and credit history, the nature of the job, and other factors. However, rates can sometimes be as low as .5% or as high as 20%.
Principals who are considered by the surety to be more likely to fulfill their obligations will pay a lower rate, while those who are seen as less reliable will pay a higher rate. Say two companies each need a bond for a construction project worth $500,000. The first company has a good credit history, strong financial position, and a track record of completing similar jobs to clients’ satisfaction. This company might receive a rate of 1% from the surety, which means they would only pay $5,000 for coverage. The second company has limited working capital and has a reputation for not completing jobs on time and producing lower quality work. This company might receive a rate of 6%, which means they would pay $30,000 for the same bond.