Advantages

Why is it worthwhile to choose surety insurance?

The advantages of a surety bond

The significant advantage of surety insurance is that it does not place a burden on the credit line of the enterprise, since the bond facility leaves the client's bank credit lines available for working capital and other funding requirements and allows in general a more cost efficient management of corporate debt. It is an additional source of finance, complementary to bank finance.

For enterprises, it is important to make a diversification of the resources in order to be able to avoid the inconvenient situation of depending on a single financial institution.

Surety insurance could also be available for a lower level of collateral provision and sometimes at more favourable prices, thus it is able to support the operation of the enterprises much more effectively (released cash flow, stronger liquidity).

Legal advantages

Insurance companies are entitled to undertake either guarantee or suretyship commitments. Depending on whether the beneficiary is a member of the public sector or private sector, we have to examine the relevant sectorial legal regulations or the contract itself to see what type of collateral will be accepted.

With particular regard to the financial stability of the insurer in case of breach of contract, a surety bond provides the same security for the beneficiary as a guarantee would provide; in other words, the beneficiary receives the security amount specified in the bond!

Surety bonds are more advantageous than guarantees because the interest of the parties can be much more equally expressed in a bond than in a guarantee. Surety bonds also exclude the possibility of unfair calls unlike guarantees. Since a surety bond is a certain promise of payment in case of breach of contract, it balances the legal status of law-abiding parties.

The benefits of the surety bonds have been recognised by most European policies and, therefore, most of the relevant legal regulations allow the national enterprises to fulfil their collateral service obligations with bank guarantees or surety bonds chosen by their own discretion.