Pivoting in new directions with surety bonds

Unexpected business disruptions are becoming the new norm. Although nobody can expect the unexpected, some companies caught off guard still manage to come out on top. The thing these companies have in common is the ability to find opportunities in change, and to use the right tools to pivot direction. Understanding your business needs and the financial tools available is the first step in positioning yourself to bounce back from sudden market changes.

Some companies in the machine and construction sectors have managed to respond to changes in the market due to their response to unique demands.

Corporate companies in Germany and Austria were able to produce custom-built machinery to meet the increased demand of medical products, e.g., germicides or face masks or set up manufacturing sites for vaccine production. They used advanced payment bonds to get these particular projects underway.

Another e-commerce company trading in homeware products needed to acquire new storage space for increased stocks to meet growing demand and to subtend disrupted supply chains linked to lockdowns. They received a rental bond to cover this additional rental space and adapt their business strategy in response to changes in the market. Some companies have become very careful about making new investments, while others are observing new trends and repositioning themselves to make the most of changing circumstances.

Surety is just one of many financial tools on the market. It’s helpful to be aware that there are several different types of bonds so you can find the best-suited tools for your specific sector and project needs. From rental bonds to advanced payment bonds, there are options that can support a change of direction based on your company’s specific needs and goals.

When it comes to pivoting into new directions, surety bonds are often a favored alternative to bank guarantees. They enable companies to access liquidity without having to extend their credit lines with banks. You can look for Allianz Trade experts regarding credit risk basics who can help you position yourself for more financial flexibility.

For corporate clients, surety bonds create a contractual triangle between the surety bond company, the beneficiary/project owner (party requiring the bond), and the partner performing the contract/project. In this way, surety bonds generate trust and security between business partners.

When, for example, a city like Berlin builds a new town hall, it requires a bond to cover advance payment made to the contractor to purchase materials. Should the contractor go bankrupt, the surety bond company reimburses part of the advanced payment.

A performance bond is also issued, usually 10-30% of the total contract amount, providing security for fulfilling the contract itself. It is easy to see how such bonds add even greater security and value when the economy is disrupted and businesses run into trouble.

Allianz Trade’s global insights and surety teams around the world offer support to companies navigating unexpected business disruptions and pivoting into new directions.