Construction projects are always going on and the growing rate of the construction industry has led more and more people to the field. If you are in the construction field or looking to get into the field, you need to know about performance bonds and how to obtain one. There are other surety bonds that you may be required to have, but a performance bond could be the difference in your success or failure.
What Is A Performance Bond?
Before you can look at obtaining a performance bond, you need to know what this is. A performance bond is a guarantee between 3 parties that the construction work will be completed to a standard and within a timeframe agreed upon in the construction contract. The 3 parties are the surety company, the principal and the obligee.
The surety company will issue the performance bond to the principal or contractor. The obligee is the project owner who is having the construction work done. If the terms of the contract are not met, the project owner will be able to claim against the bond for a set amount. The amount will be paid by the surety company and the contractor will have to pay the surety company back.
Performance bonds are put in place to protect the project owner. However, it is also possible for the bond to protect the contractor. This does not mean that you should replace your insurance with a performance bond and more info is found on bilisimpolisi.com if you need it.
Obtaining A Performance Bond
Many contractors assume that obtaining a bond is as simple as applying for it and getting it. Before you can apply for the bond, you need to be awarded a contract that will be the basis of the bond. If you have not been awarded a contract, the surety company will not go through with your application.
When you apply for the bond, there are a number of checks that the surety company will perform. The first is a background check on your company to ensure that your business can handle the project and will be low-risk. Financial checks will also be completed on your business by the surety company. If the surety company finds that everything is in order and that you will be able to complete the project to the set standards, you will be awarded a bond.
What Happens If You Have Bad Credit?
If you have a business with bad credit, it can be much harder to get a bond. This is particularly difficult for small companies as larger companies are able to be bonded with bad credit because their accountants can prepare their finances for review. If you have a small company with bad credit, you need to ensure that your finances are ready for review. If you do not, you could end up paying a very high annual premium for the bond if you are able to obtain one at all.
Getting a performance bond is that most construction contractors will need to do at some point. In order to apply, you will need to be awarded a contract and have all your finances in order.