Utility Surety Bonds: How they work and how to get a quote
Businesses of any sort require power provided by utility providers. However, unlike residential consumers, a utility bond is required for most businesses in order to be serviced by power companies.
This post will guide you through everything you need to know about utility bonds including utility bond costs, what they are, how they work, who needs one and other relevant topics.
What is a utility bond?
A utility bond (or utility deposit bond) is a financial guarantee that ensures that a business will pay their utility bill to their utility company in full and on time. It’s similar in function to a deposit – utility bonds are often preferred due to less cash being tied up.
How does a utility bond work?
If a business fails to pay its utility bill and there is a utility bond in place, the utility company that the business has signed with can file a claim against the bond to collect the amount owed.
A utility bond can be thought of as a contractual agreement between three parties:
- The Principal: This refers to the party/business responsible for obtaining a bond before their utility is activated. The principal is responsible for paying any claims filed against the utility bond, regardless of if they are unable or unwilling to pay.
- The Obligee: This refers to the utility company that requires businesses to obtain a bond before providing service. If the principal does not pay its utility bills, the obligee may file a claim against the bond. A bond agreement guarantees that the obligee will receive payment for their services to the principal, even in the principal attempts to refuse to pay.
- The Surety: This refers to the company that issues the bond to the principal party and guarantees payment to the obligee. When utility bills go unpaid, the obligee may file a claim with the surety – if the claim is valid, the surety will compensate the obligee and then principal will owe the surety the amount unpaid.
What does it mean to be bonded in Canada?
Bonding essentially refers to a type of insurance that prevents against loss – an insurer guarantees payment in the event that an employee or other contractual partner’s actions cause unforeseen financial loss for the employer.
Being bonded usually refers to surety bonds which utility bonds are a type of.
Who needs a utility surety bond?
Essentially all businesses will require a utility surety bond due to the fact that all businesses have the potential to either make late payments or default on payments.
What’s the difference between a bond and insurance?
While bonds are technically a type of insurance, there are some differences between the two terms, such as the following:
- Bonds are three party contracts while most insurance policies are two party contracts.
- Insurance providers don’t require the insured party to pay for losses – the insured party pays premiums in exchange for coverage. While a deductible is usually required, the insured is not responsible for the full incurred cost.
- In contrast, when insurance bonds are issued, the principal pays a service fee to the surety in exchange for using the financial backing of the surety company. While the surety company will pay the obligee if a claim is made against the surety bond, the principal is still ultimately responsible for the cost and is required to pay the surety.
How are utility bonds calculated?
The amounts are based off of a utility usage projection. Factors that are a part of this projection include the time period for utility services, the estimated costs for this time period and a percentage of the services.
The annual premium for a surety bond is a small percentage of the required bond amount, based off of the aforementioned projection.
The premium amount is based off of factors such as the principal’s financial standing and credit score.
Can I get a utility surety bond with bad credit?
Generally, it’s still possible to get a utility surety bond with bad credit – however, a higher annual premium will be likely in these circumstances. Additionally, it may be more difficult since surety providers may want to avoid shouldering the risk of a client with a poor credit history, depending on the severity of the client’s credit history.
How to get a utility bond quote?
In order to receive a surety bond quote, you’ll need to get into contact with a public or private insurance and surety provider. Oftentimes, this will be mediated by a broker.
Many bond companies have online applications for utility bond quotes as well as mailing addresses for all relevant documentation – you’ll need to include the name of the utility company/obligee, the bond amount and in some cases, proof of payment for current utility bills.
Get a utility bond quote
If you’re not sure where to start, we can help with that. Contact us with more details about your project and business as well as any future plans and you’ll receive a free, no-obligation quote for a utility surety bond.
How the process works
Once we get to know your needs and future plans, our team will then reach out to industry partners specialized in utility bonds and provide you with the best available options from our partner brokers.
Our partners will provide you with reliable advice to help you get the most appropriate utility surety bond for your business’ needs.
Why Trust Us
Our team has years of expertise in the utilities industry – over the years, we’ve established strong relationships within this industry and teamed up with utility providers and other energy adjacent providers to bring our consumers the best services and advice available.