Stening Simpson were recently asked the benefits and types of Surety Bonds. Below is a brief summary.
Benefits of Surety Bonds
- Surety Bonds are widely accepted form of contract security and accepted by the private sector, federal, state and local municipalities.
- Are flexible and operate alongside traditional banking facilities.
- Surety Bond Facilities are unsecured (no tangible security or collateral is required).
- Surety Bond Facilities allows Contractors to free up funds and reduce debt and tender for more contracts without being restricted by security requirements.
- Surety Bonds are an alternative to bank guarantees.
- Surety Bond Facilities allows the company greater financial flexibility by allowing the company to leverage of its capital base and therefore utilise assets more cost effectively.
- There is no upfront or establishment fees or ongoing fees payable, apart from legal documentation costs on establishment of Facility. Premiums on Surety Bonds are only payable on usage.
- There is quick turnaround in issuing Surety Bonds to meet contract deadlines.
- Provides the company funding flexibility / options by not having to utilise its banking lines.
Types of Surety Bonds
Contract Bonds provide security against non-performance or default. Contract Bonds include:
- Retention Release
Provides security to the beneficiary when the contractor is advanced funds from the retention fund.
- Off Site Material
Secures the beneficiary where payment to the contractor for items to be constructed off site has occurred but delivery of the goods has not taken place.
Supports a contractor’s bid or tender to ensure that they will enter into a contract if accepted.
- Performance Bonds
Provides security to the beneficiary against the contractors non-performance or default during the contract period.
- Maintenance Bonds
Secures the contractor’s obligations during the warranty or defects period.
- Advance Payment
Secures funds advanced to the contractor for capital purchases or site preparation.
Commercial Bonds provide security for a company’s obligations under local, state and federal governments regulation or statute. Commercial Bonds include:
- Mining Rehabilitation Bonds
Legislation is changing requiring mining companies to provide a greater level of financial assurance by increasing reserves and capital, which is an onerous financial commitment and may adversely affect the economic feasibility of the project.To help mining companies comply with individual state legislation in a manner that mitigates the risk of early closure, whilst at the same time allowing the company to optimise its cash management and capital strategy, there is an innovative and flexible mining rehabilitation product that:
- Complies with current state legislation;
- Provides the mining company with financial flexibility with less onerous security requirements than those required by banks;
- Enables the mine to potentially access surplus free cash or cash, previously tied up by banks or state governments, to facilitate growth and investment.