4 reasons SMEs and midcorps should choose insurers for surety bonds 

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.