Why Would a Surety Bond be Denied?

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Why do companies deny surety bonds?  

A company denies a bond for a few reasons. First, a company might deny a bond because of the applicant’s past history. A surety company will investigate an applicant to ensure that he or she has not had any previous problems with other bonding companies and that the individual is trustworthy and reliable before accepting him or her as a client. Someone who has poor credit or a criminal record might be unable to secure a surety bond.

The second reason that a company might deny an individual’s surety bond application is if the applicant’s financial information does not measure up to the bonding company’s standards. Some companies have very specific criteria for accepting applicants and require an applicant to have certain qualifications in order to be approved. Without meeting these requirements, the applicant will not be able to secure a bond.

The last reason that applicants might get their surety bond applications refused is if they are applying for an overly large or complex bond. Some companies will only provide bonds up to a certain value (such as $25,000) while others only provide surety bonds within particular industries (for example, construction). 

Additionally, some specific types of businesses cannot employ subcontractors because the bonding company does not offer coverage in that industry. Applicants should keep this in mind when considering the type of surety bond they would like to purchase and ensure their eligibility before applying for a policy.

What disqualifies you from being bonded? 

There are a number of factors that can jeopardize your ability to obtain surety bonds. The most common reason for an application being denied is unfavorable credit history. Applicants with past delinquencies, charge-offs, or judgments against them are considered high risk and are therefore less likely to be approved for bonding. 

If you have poor credit, you may want to consider using another form of collateral in place of the bond or finding ways to explain any blemishes on your report before applying with a company.

Another factor that can cause applicants many problems is having unpaid taxes outstanding with the IRS or state. Companies will check into this during their underwriting process and deny applicants if they find unpaid taxes. You may need to resolve this issue prior to applying for a bond.

You may also be denied if you have had past filing or payment issues with other bonding companies. This is because the company will not want to take on the risk of hiring an individual who has already failed to meet obligations in another industry. If your application is denied, you should research some basic steps that might help you improve your application before approaching another surety company with an application. 

How are surety bonds underwritten?  

Applications for surety bonds are underwritten by a company’s underwriting department. Each application is reviewed and an underwriter will make his or her decision based on the information in the application and background check. 

Applicants should be aware that having a clean credit report will not automatically mean they will be approved for a bond. Companies have different criteria for approving applicants so not being accepted by one surety does not mean you will have no luck with other companies.

What will you do if your surety bond application has been denied?  

If an application is denied, it does not mean the applicant has been blacklisted from the bond industry. Many times a company will make a decision based on their judgment of risk and other review factors. 

If your surety bond application has been denied, you should reapply with another company that handles bonds within your industry. You may also want to improve any areas that caused you to be rejected, such as improving your credit score or paying off outstanding IRS taxes before making another attempt.

What are the most common reasons why surety bond applications are denied? 

Some of the most common reasons applicants might be denied a bond include poor credit history, outstanding taxes owed to local, state, or federal government, and having a criminal record. If any of these factors apply to you, you should work on improving your chances before reapplying with another company. Additional factors that can affect an application for a surety bond include:

  • Unfavorable driving records. Driving without insurance is currently legal in some states, but it will reflect poorly on your application. Convictions for DUI/DWI within the last seven years may also cause issues when applying for a bond.      
  • Inability to meet financial obligations such as mortgage, rent, or credit card bills on time. Also having large amounts of debt or unpaid taxes can work against you during the underwriting process. If your application is denied and you believe it was because of one of these factors, consider resolving the issue before applying again.
  • Having a criminal record. Felony convictions may disqualify someone from obtaining a surety bond so find out if your offenses will impact your ability to obtain bonding insurance before applying. If you have only misdemeanor convictions, this may not be as important but nearly all companies will check applicants’ criminal history so it is best to be forthcoming with any information that could result in rejection.

Want to know more about surety bonds? Visit Executive Surety Bonds now!

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