Character, Capacity, and Capital - the Three C's of Surety Bonding

Surety underwriting is a meticulous process that evaluates the risk associated with providing a guarantee for the performance of a contractual obligation, a surety bond. The foundation of the evaluation are the three fundamental pillars known as the 3 C's of surety: character, capacity, and capital.

Character: Reputation, Integrity, and Track Record 

Character refers to the reputation, integrity, and track record of the individual or entity seeking surety credit. It encompasses factors such as honesty, reliability, and adherence to ethical standards. A strong character demonstrates a commitment to fulfilling obligations and mitigates the risk of default.

Capacity: Ability to Perform Obligations 

Capacity assesses the applicant's ability to perform the specific obligations outlined in the contract. It considers factors such as expertise, experience, personnel, equipment, and operational capabilities. Demonstrating a proven track record of successfully completing similar projects enhances capacity and instills confidence in the surety regarding the applicant's competency.

Capital: Financial Strength and Resources 

Capital represents the financial strength and resources available to support the obligations being guaranteed. It includes assets, liquidity, profitability, and overall financial stability. Sufficient capital provides a safety net in case of unforeseen challenges and enhances the surety's confidence in the applicant's ability to meet their commitments.

Understanding and embodying the principles of character, capital, and capacity are essential for those seeking surety credit. By focusing on these key elements, applicants can strengthen their position and increase their chances of securing surety bonds for  projects and contracts.

How do I get a Surety Bond?

Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.

What is a Surety Bond?

A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.

All information provided is subject to change.