What is Surety Bond Collateral?

Surety Bond Companies will sometimes require collateral for hard to place surety bonds. Hard to place surety bonds can either be those that are considered to be a very high risk of claim by the very nature of the obligation being covered or bonds written for principals who are considered high risk such as individuals with less than perfect credit. Collateral is often in the form of cash posted directly with the surety company. Less frequently the surety will allow a principal to provide a letter of credit from a bank that allows the surety to draw down upon a principal’s existing line of credit in the event of a claim. The principal often has to sign a collateral agreement that agrees to the surety’s terms of collateral release and that allows the surety to hold the funds for a certain time period beyond the end of the bond term.