4 reasons SMEs and midcorps should choose insurers for surety bonds 

October 26, 2023

Small and medium-sized enterprises (SMEs) and midcorps need surety – that’s a fact. In certain sectors, including engineering, machinery and construction, surety bonds are a contractual requirement.

Many SMEs and midcorps in these sectors reflexively turn to their bank for surety bonds. But this isn’t their only option. There are good reasons for these companies to choose an insurer for surety bonds instead – reasons that can save time, support your growing business, free up liquidity, and protect projects. Here are four:

Financing is an essential piece of the puzzle for infrastructure project developers. However, for finance providers such as banks, risk on loans is increasing – particularly for projects in emerging countries, which typically face greater volatility or require long-term support. This is where insurance companies come in.

The benefit of insurance on a loan for infrastructure projects is threefold. Firstly, lenders can offer greater credit facilities at a lower cost and with less risk. Secondly, insurers are stable players that can provide the long-term commitment required. And finally, thanks to benefits one and two, insurance means that developers can multiply their impact. In other words, they can increase the number and scale of their infrastructure projects.  

A performance bond, also known as a contract bond, is the most well-known and widely-used form of surety, designed to guarantee the completion of a project by a contractor. Often required by the project owner once a bid is accepted, performance bonds protect the project owner, or obligee, in case a project is not completed according to the terms laid out in the contract.   
In certain countries, project owners are allowed to withhold part of the final payment of any construction project for a specified period to cover defects detected after completion, for example faulty materials. If a construction company presents a maintenance bond, however, the owner must pay out 100%. The result? The contractor retains good cashflow, and the owner is secured against potential defects
Imagine, for example, a machinery construction project. The manufacturer has several immediate expenses: material costs, labor costs, subcontractor costs and equipment costs. The company needs to either finance this itself or take a loan. Advance payment bonds from insurers replace that financing and create liquidity by guaranteeing a down payment, enabling the project to get started and protecting the buyer against non-completion.  

Allianz Trade’s bonds are almost universally accepted, compliant with global regulations, and can be issued directly in English, French, Spanish and German. Our global presence, with offices in over 50 countries, means our surety experts are close to our customers and know their local markets inside out. Furthermore, our extensive network of fronting partners can issue bonds on our behalf in countries where we don’t have a presence.

We also have access to the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network, meaning that we can communicate instantly with a bank in, say, Brazil, to confirm that we can issue a bond. Within this secure network, that communication is binding.

Regional banks' bonds may not be accepted internationally and they may not have these resources. This makes partnering with us an advantage for companies trading abroad.

The faster a bond can be issued, the faster a contractor can meet a project’s legal requirements – potentially making the difference between winning a project and missing out. We have many standard bond wordings that can be issued immediately. And if not, our experts are on hand to read and make fast, accurate decisions on non-standard wordings.

Our online tool also enables clients to enter bond requests directly into the system. The requested parameters are then checked against the bond criteria and, if it fits within that client’s facility, the bond is instantly issued. If it doesn’t fit, our clients can contact our team to discuss their needs. 

Electronic bonds or ‘e-bonds’ are relatively new to the surety market, but they have been adopted quickly by many European providers, including Allianz Trade. Insurers can electronically create, sign, and issue e-bonds, which clients receive immediately. Since e-bonds are secured and authenticated by an external, EU-certified provider, they are a fraud-resistant choice for delivering bonds.

As a large, trusted insurer with a consistently strong AA rating (very strong from Standard & Poor’s), Allianz Trade is a reliable surety partner for SMEs and midcorps. We offer a range of bonds tailored to clients’ needs, issuing them quickly and safely to companies worldwide.

Our global network, local expertise, strong digital systems and e-bond capabilities make us the surety partner or choice for 16,500 customers worldwide. 

Christian Lüdtke

Head of Department Surety and SMEs

Allianz Trade