How surety bonds can support businesses beyond construction

“It’s a common misconception that surety bonds are only for the construction industry,” says Robbert Langhorst, Commercial Head of Global Surety Distribution for Allianz Trade in the Global Surety team. “In fact, surety bonds simply ensure that business is conducted effectively, productively and securely, so they really are an option for all sorts of industries.”

But there are a lot of different kinds of surety bonds on the market, so determining the most suitable for your particular industry can be challenging. As Sophie Schulz, Head of Bonding Large Corp, Allianz Trade in Germany, points out, “businesses that ensure access to the right kind of surety bonds can see significant benefits.”

Below, we look at several industries and the surety bonds that best correspond to each.

Performance bonds are used across multiple industries to guarantee that a contract’s obligations will be respected. This could be for a construction or real estate project, or the delivery of goods or machinery – it’s a universal bond type. This is particularly in relation to price and duration. It serves as collateral, ensuring that the bidding contractor who has won a project will complete it according to the contract’s terms. If the contract is not fulfilled, the surety provider will step in.

Temporary work bonds are legal bonds, the main function of which is to secure the payment of taxes. “In France, where taxes significantly influence a company’s finances, we use this legal bond to ensure a business can pay its taxes,” says Sylvain Nalies, Bonding KA Manager, Allianz Trade in France. “The beneficiary is the French government. The bond also acts as a kind of filter. It selects the kinds of companies that can practice this, because they must have a solid treasury to apply for these bonds.”

The growing demand for renewable energies is driving a need for new project developments around the world. However, investing in such projects can carry substantial risk. “Grid bonds cover everything from the tender phase to producing energy and delivering it to the national grid,” Sophie says. “In Germany, one example for this particular need is netzanschlussgarantie. Beyond reducing risk, they can be a legal requirement. Public authorities often request them – particularly in southern Europe – before granting permission to build.”

Custom and excise bonds are essentially payment bonds. “When a company is storing goods, these bonds allow them to pay taxes and VAT at a later date,” Robbert says. “It is only with the issuance of this kind of bond that a tax deferral is possible. They guarantee to the government that all required payments will eventually be made, enabling companies to seamlessly transport and store goods without needing to pre-fund or pre-pay taxes.”

No matter what your industry, the benefits of surety bonds are multiple. As well as providing security, they also offer users extra flexibility, more liquidity, and independence from banks. Allianz Trade is the world’s leading provider of surety bonds, leveraging a global presence and industry-specific knowledge that have gained the company a reputation for excellence that inspires trust among customers of all sizes, in all sectors, the world over.