Less money, faster turnaround: why escrow can be the best option for commercial surety bonds

When dealing with a bank to set up a line of credit isn't an option, some clients can find refuge in escrow

Less money, faster turnaround: why escrow can be the best option for commercial surety bonds

Insurance News

By Alicja Grzadkowska

People are predisposed to take the path of least resistance. And yet, when an individual, association, non-profit or business needs to attain a commercial surety bond that necessitates collateral to satisfy an entity they’re working with – typically a government agency – some turn to banks for lines of credit (LOCs), even though that might not be the best route for them.

“Right now, with the way banks are with the line of credit, most clients feel that the bank is charging too much to have a line of credit issued,” said Melanie Stokes, commercial surety manager at Allstar Surety. “Some charge as much as $1,600 just to have a small line of credit issued versus coming to us and we’re writing it and putting it through escrow. With escrow, all we’re going to charge is a $250 fee to hold those funds versus the line of credit.”

It’s not just about the money, though that’s a critical reason why going with escrow over LOCs is better suited for certain clients, like those who don’t want to deal with a bank, have credit issues, or have a bond that requires 100% collateral. According to Stokes, many people still don’t even know that escrow is an option with commercial surety bonds, even if it can also be a faster way to get the collateral for a bond.

“I’m slowly going that route because it’s a little easier than the line of credit,” said Stokes. “I prefer the escrow over the line of credit - one reason being that with the line of credit, they have to go through the bank and it takes at least seven days to get the line of credit. If they need that bond within 24 hours, then that’s going to sideline that bond until we can get the original line of credit.”

Stokes recently worked on a license and permit bond where her client was required to put up the collateral because of past issues with credit, which meant he couldn’t go through the standard market. The process of setting up a line of credit, putting up the amount and then the fees associated with the LOC would’ve set him back $5,000. Instead, the client provided $250 for escrow until the license and permit bond was no longer needed.

Allstar Surety is one of the largest surety brokers in the US and offers surety bonds for a wide range of clients. Their agents are experienced in satisfying requests for court bonds, probate bonds, and many other types of non-contract bonds. Under its umbrella, Allstar Financial Group also has its own in-house escrow company, National Escrow, which means its agents have the resources they need at their fingertips to help clients with commercial and contract surety bonds.



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