For developers and property owners, understanding the financial commitment of a site improvement bond is just as important as securing the bond itself. Unlike standard insurance policies, surety bonds have a unique payment and renewal structure that is dictated by rates each surety files with the state of California.
Here is a breakdown of how costs are determined, when payments are due, and how premiums are adjusted over the life of a project.
How Premiums Are Determined
The premium for a site improvement bond is calculated as a percentage of the total bond amount. While rates are filed with the state, several factors influence the specific percentage a developer pays:
- Bond Size: Premiums often follow a tiered structure. As the bond value increases, the average rate typically decreases.
- Financial Strength: For smaller bonds (under $500,000), good personal credit is often sufficient to secure a standard rate.
- Developer Profile: Large developers with audited financial statements and strong balance sheets may qualify for lower rates.
- Relationship: Establishing a bond program and having a history of repeat business with a surety can also lead to better pricing.
Payment Terms and Renewals
Surety companies typically require the premium to be paid upfront. Flexible payment options, such as installments, are generally not available for these types of bonds. The standard term structure is as follows:
- Initial Two-Year Term: The upfront premium covers the first two years of the bond. This initial premium is fully earned and non-refundable, even if the project is completed in six months.
- Annual Renewals: If the bond is not released after the first two years, it automatically renews on an annual basis. Premiums are then paid annually until the bond is formally exonerated.
Get a subdivision bond quote now
We specialize in providing subdivision and site improvement bonds for developers and property owners.
Fill out the form and one of our local expert subdivision bond agents will be in touch with you shortly.
Adjustments and Refunds
While the initial term is non-refundable, there are opportunities for cost adjustments during the renewal periods or if the scope of work changes.
- Pro-Rated Renewals: If improvements are completed mid-term during a renewal period (after the initial two years), the surety may provide a return premium based on the time remaining in that term.
- Bond Reductions: If a government agency agrees to lower the required bond amount due to partial completion, they can issue documentation stating the new requirement for the penal sum of the bond. The surety can then adjust the premium based on this lower value.
Are There Additional Fees?
In most standard cases, there are no additional administrative or issuance fees beyond the premium itself. Extra fees are typically only applied if the surety requires collateral (such as an appraisal fee) or if funds control is necessary due to higher perceived risk.
The CSBA Difference
Navigating rate structures and renewal terms requires a partner who understands the industry. At Commercial Surety Bond Agency, we leverage our relationships with surety providers to offer expert guidance tailored to your financial profile. Our first-class service ensures you understand your costs upfront, so there are no surprises down the road.
Get a site improvement bond quote now
Are you starting a new development project? Ensure you have the right support from day one.
