Isn’t the loan a typical banking tool?
No; banking tools, like conventional loans, require a borrower and a lender. In this case, the borrower isn’t defined. It could be either party to the underlying contract that is required to repay the loan. Since it is the underlying contract creates an obligation for the surety, this is a surety related tool, not a pure banking tool.

Is the Surety Bridge Fund like reinsurance?
While it is similar to reinsurance, it is not a transfer of risk. Reinsurance provides for funds that pass through the surety to meet the obligation. If contractor client defaulted on the repayment, the surety would be liable to the Surety Bridge Fund.

Why wouldn’t a surety just provide the loan itself?
It could if it wanted to. However, the surety provides for more of an arms length relationship with the owner. It doesn’t require any declaration of default or similar action to trigger the surety involvement.

Why would a surety want their contractor to get funds the owner may not ultimately approve, and subsequently take a credit?
Because failure to provide the liquidity to the contractor may result in cash flow problems that create the default on the job in question, or spread to other projects. Any default during the progress of the job would require a replacement contractor and while the risk to the surety is real, the risk could be far greater if allowed to fail.

If the contractor is found to be liable, but doesn’t have the cash to repay the loan, does the surety have to pay within 30 days?
The master agreement will call for payment in thirty days, but that doesn’t prevent alternative solutions. As part of the process for securing the loan, the contractor may have put up collateral or secured the loan in other ways. In those situations, the Surety Bridge Fund may look to those other alternatives.

The rate of return is so high in the beginning isn’t that unjust?
The reason the Surety Bridge Fund has access to funds is because it offers an attractive investment in a market generally not supported by lenders. The high return is a reward of sorts for putting together the effort that results in a quick resolution. The expense to the contractor should be considered versus the cost of pursuing a drawn out legal strategy.

Why does the contractor have to pay for the outside expert opinion?
Ultimately it is the contractor’s burden to prove its case to the owner. The contractor may recover in its negotiation with the owner some or all of the cost of the report, as well as the other costs associated with the Surety Bridge Fund process.

Who owns the outside experts report?
The report is provided to the contractor, the owner and the surety. Any of the three could use the report in the pursuit of their legal argument.

Is the owner obligated to reimbursement for the costs associated with the Surety Bridge Fund?
The agreement between contractor and owner often details what costs are reimbursable. Nothing in the Surety Bridge Fund process alters this agreement.

Is the owner or contractor obligated to accept the opinion of the outside expert?
No, it is a non-biding document.

Why would an owner agree to modify their directive and account for the funding of the loan?
The owner’s interest is in getting their project completed with as little delay and cost overrun as possible. The prevention of a contractor default or of a contractor leaving a project has material benefits to an owner.

Doesn’t the Surety Bridge Loan increase the exposure to the owner?
No, not at all. The directive issued by the owner provides that it would have the same liability with or without the Surety Bridge Fund loan.

If the owner is found liable, are they responsible for the costs associated with the Surety Bridge Loan?
Only to the extent the underlying contract or negotiations provides. While the Surety Bridge Fund is unique, it is really no different than if a contractor utilized their line of credit to finance the directive.

Who is the client of Surety Bridge Fund?
The surety company is the primary client of the Surety Bridge Fund. It provides the surety with an alternative to internal funding, and provides a tool for their contractor clients that helps the contractor mitigate their risk, which in turn serves to mitigate the risk to the surety.

Who administers the Surety Bridge Fund?
The Surety Bridge Fund is a product of North Coast Surety Insurance Services, Inc. and is provided to contractors via their respective participating surety company.

Since it is advantageous to an owner to have the financial resource available to the contractor; is there a way for an owner to get the loan directly?
No, the loan must originate with the surety. However, owners that want the loan may require that surety companies participate in the program.