Why choose a Surety Bond over a Bank Guarantee?
The key advantage of utilising a Surety Bond over a bank guarantee is that it frees up your cash / security assets, that are usually pledged to the bank (and frozen) when a Bank guarantee is issued. A Surety Bond on the other hand usually only requires a Deed of Indemnity to be executed, 'freeing' up the resources tied up in a conventional Bank Guarantee, that can be utilised in a more effective and efficient manner to grow the business instead.
What types of security are required to establish a Bond?
There is an application fee payable upfront according to the size of the Bond required, regardless of the outcome of the Bond Application. There may also be legal fees payable, associated with the setup and execution of the Deed of Indemnity and Guarantee. Legal fees may vary depending on the complexity of the Bond requirements and guarantors involved.
Can my premiums be paid in installments?
All premiums, any associated costs and government duties (if applicable) must be paid upfront before the executed Bond document can be handed over.
What is the maximum Bond tenure available?
Depending on the type of bond required and its purposes, generally the maximum period is up to three years.
How long does it take for me to get a Bond approved?
Realistically it may take two to four weeks to get a Bond approved and issued. This is heavily dependent on the quality and relevance of the information supplied by the Applicant at both the application and submission stage. Hence it is imperative that a timely application be made to avoid unnecessary delays.
What is a Deed of Indmenity and Gurantee?
A Deed of Indemnity and Guarantee is a legally enforceable document that gives the underwriter the right to recover the amount of the bond from you (et al) (“the Guarantors”) if you default under the contract, after a Bond is called on and paid for by the Underwriter (Surety).
What are my roles and responsibilties once a Bond is issued for my project?
After the Bond is issued, you (the Applicant) will need to adhere to the following obligations required by the Underwriter:
• Ongoing management reports and accounts are required to be provided by you on a Quarterly basis
• Your nominated project administrator may be contacted by our account manager for updates on contract progress
The Applicant must also notify BGA immediately in writing and/or adhere to the following requirements:-
a) Any major change in shareholding, directors, principals or managers of any company which has provided an indemnity or guarantee; and/or
b) Any major changes to the financial position of any entity or person(s) who have signed a Deed of Indemnity and Guarantee.
c) Submit copies of the audited annual statutory accounts for the Applicant and its controlled entities within 120 days of the Contractor's financial year end, to the Underwriter;
d) To immediately advise BGA of the acquisition of any subsidiaries or other structural changes including the involvement in any joint venture projects
e) To immediately advise BGA of any subsidiaries that may have commenced business or are likely to commence business
f) To always maintain adequate business and business-related insurances at all times. Documentary proof shall be provided to the Underwriter upon request.
g) To immediately advise BGA of any other bond or bank guarantee facilities to be entered into by the Contractor or its subsidiaries
h) Immediately advise of any proposed security to be taken over the assets of the Applicant, or any other party to the Guarantee and Indemnity
document. That is, no additional security over an asset, or number of assets is to be offered by the Contractor or any subsidiary or associated parties, without the prior written consent of BGA (consent shall not to be unreasonably withheld)
i) To immediately advise of any additional guarantees that the guarantors to the Bond may be required to provide to other financial institutions (excluding preexisting arrangements prior to the issue date of this Bond) or entities during the term of this Bond. Note no additional guarantees are to be provided by the Guarantors of this Bond without the prior written consent of BGA (consent shall not to be unreasonably withheld)
j) No non-trading assets owned by any of the Guarantors or major non trading assets owned by the various entities are to be disposed of without first notifying BGA and seeking consent.
k) The Contractor shall provide a copy of their internal management accounts (including Profit and Loss Accounts, Balance Sheets, Cash Flow projections, and Work in Progress reports) as an entity and / or consolidated as a group, within 30 days of the close of each quarter.
l) The Contractor undertakes to notify BGA immediately of any breaches of financial covenants and to inform BGA promptly of any amendments which may subsequently apply to any existing financial covenants and undertakings agreed with any other finance provider.
m) An undertaking from the Contractor that they will maintain a minimum Equity ratio of not less than 15%. (note - Equity ratio means the ratio of Tangible Net worth over Total Tangible assets expressed as a percentage. Tangible Net worth means Total Tangible Assets less Total Liabilities. Total Tangible Assets means, at any time, the aggregate book value of all Assets of the group, calculated on a consolidated basis in accordance to Australian accounting IFRS standards. Total Liabilities means, at any time, the aggregate amount of all Liabilities of the group, calculated on a consolidated basis in accordance to Australian accounting IFRS standards.
n) An undertaking from each Guarantor that is party to the Deed of Indemnity and Guarantee that each Guarantor undertakes to BGA that it will not, without the prior written consent of BGA (consent shall not to be unreasonably withheld) provide loans, guarantees, other financial support and/or make investments exceeding $500,000 to any related entity or individual not a party to the Deed of Indemnity and Guarantee.
o) An undertaking by the Applicant to BGA that it will not, without the prior written consent of BGA (consent shall not to be unreasonably withheld), make any dividend payment or distribution (including but not limited to Management fees and non trade related disbursements) that would be greater than 50% of the net profit after tax in the financial statements in any one financial year.
p) An undertaking by the Contractor to BGA that it will not take up additional Surety Guarantees (Bonds), Bank Guarantees and/or Bank financing, from the issue date of this Bond, without the prior written consent of BGA (consent shall not to be unreasonably withheld).