There are bond alternates, but are they as good as a surety bond.
First alternate instead of paying for a surety bond you could post 100% collateral with the obligee if they allow it. Some obligee accept a cashiers check or a ILOC. A ILOC stands for irrevocable letter of credit. The obligee may provide sample verbiage of how they want it to be written or you bank has a sample form all ready drafted. If you decide to obtain a ILOC the bank normally will want the ILOC to be secured by assets or cash. Banks also charge a fee for providing these services. The prices for a ILOC is around the same price for a surety bond.
The problem with collateral is that it may take you several years before the collateral is returned to you. The obligee normally will not release the collateral until your business has been released of all liability. Keep in mind that there is no statute of limitations on fraud. From what I have been told from customers it takes on average of 3 years with some obliges to release your collateral. I once had a client that took 6 years for to get his collateral back. He had to jump though several hopes before they would even consider returning his money back to him. The obligee required for the client to obtain a surety bond and have the surety write a letter stating that they would consume all past liability. With the way the market is today I don’t see a surety doing that again.
In this economic climate I would rather pay a small premium rather then tying up $10,000 or $25,000 of my working capitol.
Tags: iloc, surety, surety bond
