Guarantor contracts are also known as surety bonds. As with any financial product, these bonds are surrounded by myths and downright falsehoods. Let’s take a look at some of these terrible misconceptions.

Myth #1 – You Need Two Bonds

Some people think that they need a bond for each of the different states in which they operate. Brokers love this myth, because they will provide you with a discount if you buy both from them. In 90% of cases, you don’t need a second bond. The exception is if the liability in the other state is lower AND the filed rate of the surety company is lower as well. If you want to get a lower rate bond, then buy one over multiple years. This will give you a real discount, rather than just being charged a broker fee without realizing it.

Myth #2 – Banks Will Loan Me the Money if I Get a Bond

In 99% of cases, they will not. If banks don’t want to borrow you money, then you don’t meet their criteria, with or without a bond. In fact, you probably can’t even qualify for the bond either. This doesn’t mean you shouldn’t try to get a bond for a loan, because you may be part of that 1%, so it is always worth a shot. However, be realistic and know that you are unlikely to get anything. This all changed when Enron went bust, at which point surety companies no longer provided security for loans.

Myth #3 – Brokers Don’t Run Credit

The only time a broker won’t run credit is if they have a defective title bond, or if you want a notary bond. In 99% of cases, your credit will be reviewed. If you went to a bank to ask them for a loan, they would run your credit as well, wouldn’t they? A surety is a form of credit, so they will make sure you are good for it.

Myth #4 – One Bond Can Be Used in All Sates

This is not true if you currently hold a state bond. Every state has its own regulations in terms of surety bonds and bond forms. However, if you have obtained a federal bond, for instance through an ICC broker, then it will be valid in every state. However, if you have a federal bond, the state in which you operate may also need a state bond.

Myth #5 – The Government Will Give Me a License if I Have a Bond

This myth stems from the fact that you cannot get a license without a bond. However, having the bond in place does not guarantee that you will get your license. You also have to meet the various other obligee requirements. This may include specific forms of education, passing a background check, and zoning requirements.

There you go, the five key myths that exist about surety bonds. Make sure you are always properly informed, so that you act within the confines of the law.

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