Why is so much Private Information Required to be Bonded?

For those who are dealing with obtaining their first surety bond, it is frequently stunning and disconcerting the amount of detailed private information that is asked for. Once the pre-qualification process is completed and if an ongoing surety program is set up the comfort level between the bonding company and the client usually increases dramatically as financial, organizational, and operational questions become more routine, but early in the relationship the intimate nature of the surety’s inquiries can require some sensitivity and careful mutual understanding until a spirit of trust can be established.

Why does the bonding company ask for so much private information? For an answer, we must return to the basic platform upon which a surety relationship exists. In a very real sense, the surety stands in the place of the client (principal) when it writes the bond. As such, all responsibilities and obligations the principal has agreed to take on in the agreement that is being bonded instantly become the responsibilities and obligations of the surety company. For a real life simile to the bonding relationship, imagine that you were approached by a total stranger and asked to cosign a bank loan with them. They will agree to pay you back if they default but there will be no security for you other than their word. What would you do? If you did not simply walk away as fast as possible, chances are that since you did not want to lose a lot of your hard earned money you would ask every question you could think of and get to know everything possible about this stranger before you agreed to share with them the obligation to the bank.

The business of the bonding company is to take on these requests, charge a fee for the expenses and the cost of capital required to cover the risk, and to try to make a profit doing so. The bonding company does not take over the obligations of the principal, it shares it. Therefore, only if the principal fails to perform does the surety reach into its own pocket. If it were you, wouldn’t you want to be convinced as completely as humanly possible that you were sharing responsibilities only with a partner which had the capability to meet its obligations, was worthy of your trust, and had the financial strength to handle problems which could arise and still be able to complete the task as you have guaranteed?

The surety relationship is the closest and most intimate that can be established in business. The surety company truly becomes a partner with its principal when the bond is executed. The bonding companies are very careful to choose their partners wisely. Potential principals should be equally careful when choosing a surety and the agent who will be representing their interests.