Surety Bond Professionals is a family-owned and operated bonding company with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with your utility bond needs.
What Are Utility Bonds?
Throughout the country, utility companies require certain commercial customers to purchase a utility deposit bond (commonly referred to simply as utility bonds) before turning on their utility service. The bond is the customer’s guarantee to pay their utility bill in full and on time.
Often, a utility surety bond is an alternative to a cash deposit. The bond is preferable for many businesses because they don’t want to tie up a large amount of cash. A utility bond serves the same purpose but with a much smaller cash outlay.
Who Needs Them?
Utility companies most often require utility bonds from businesses that are projected to have high utility demands, such as factories, restaurants, large retailers, and campgrounds. This is especially true when the business is a start-up or in a new location and has no prior payment record with the utility company.
Businesses that are projected to have particularly high energy bills, especially those that don’t have a prior track record with the utility company, will very likely be subject to a utility bond requirement.
The utility company won’t turn on utility service to the business location until there is a valid utility bond in place.
How Do They Work?
If the utility customer (the “principal” in the utility bond contract) fails to pay the utility bill in accordance with the terms of that contract, the utility company will file a claim against the bond to collect the amount due.
While the principal is legally obligated to pay any valid claim, the surety company that issued the bond will typically go ahead and pay it. But that advance payment doesn’t change the fact that the principle is legally responsible for claims payments. Therefore, the principal must reimburse the surety bond company in full.
What Do They Cost?
The annual premium for a surety bond is a small percentage of the required bond amount. In the case of utility bonds, the utility company sets the required amount for a given bond depending on projected utility usage. The premium rate percentage is determined by the surety bond company based on such factors like the principal’s personal credit score and financial standing.
The better your credit, the lower your premium rate. But even the credit-challenged should be able to get a utility bond, though they may pay a higher premium rate.
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