Performance Bond Toolbox – Co-indemnitor

Last updated on Friday, May 5th, 2017 No Comments

Once a contractor is declined for a performance bond, it doesn’t necessarily mean the bond cannot be written.  The SBA, collateral, and fund control are all options but for small requests sometimes a strong co-indemnitor will suffice.  Simply put, a co-indemnitor is a cosigner, and serves the same purpose as a co-signer for an automobile.  The co-signer AND the contractor are indemnifying the surety from loss.

A co-indemnitor isn’t utilized much for performance bonds because it’s only appropriate for the right type of contract, contract size, and principal.  Though there is no one-size-fits-all approach for when a co-indemnitor is appropriate, a good rule of thumb would be for a fast turning general construction contracts less than $50,000 with a principal that has marginal credit.

•  Good Fit – A contractor is awarded a $30,000 project and has a 620 credit score from prior late pays on credit cards.  Maybe there is nothing too serious on the credit report, but the score would disqualify the contractor from most credit based surety programs.  A co-signer with excellent credit that and owned real estate would probably be acceptable to write the bond.
•  Bad Fit – A contractor with a 550 credit score with open tax liens and behind on their mortgage; a co-signer is probably not going to help.  A contractor in this situation is most likely out of options.

If you have a small performance bond and been declined, keep in mind that you may have options, including a co-indemnitor. Contact Surety 1 if you are in need of a performance bond.

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