Bank vs Bond

Differences between Bank Bonds and Surety Bonds

Only the performance risk lies with the surety, where the bank has the financial risk on the construction project.

Nominal Fee 1-2% for the facility
Established relationship - Bank knows your Accounts making the process easier
Way they are structured makes them more akin to On-Demand
Required to put up the full amount of the Bond value from day 1 (Have to have cash value)
Bank has no claims department and may pay and call on the bond without investigating
Seriously hinders Free Cash Flow for the duration of the contract

Won't pay out until satisfied that the bond has actually been contractually broken
Does not affect your free cash flow
Way they are structured is Conditional
Surety companies charge a higher % than banks, typically 1-7% (based on companies financial strength)
Asks for counter Indemnity
May ask for Personal Guarantee
Process can be arduous as Surety’s have to establish financial strengths from a standing start