Just 15 or 20 years ago, tech companies had reputations for rapid business cycles and increased risk, making surety bonds for technology-related contracts difficult to obtain. But in recent years, the playing field has changed drastically, with financial experts feeling more confident in tech investment now that technology is a foundational part of our world. Despite these market changes, many technology companies still fall into the old routine of utilizing letters of credit or posting collateral to guarantee their performance. For companies looking to move away from old methods, bonds are an attractive alternative for many reasons: they aren’t credited on the company’s bank line, are not typically listed as contingent liabilities in corporate financial statements, and usually provide a more robust defense against default.
Bottom line? The surety process is no longer out of reach for tech companies. If your company is considering a surety bond, here are five things you should know before you start the process.
1. Understand your options.
Surety in the tech sector is still an emerging market, meaning many risk managers simply don’t know what options are available. There are a variety of bonds that are relevant for the tech industry, however. For example, lease and utility payment bonds can help secure commercial space to expand your operations, while worker’s compensation, customs, and tax bonds cover dues owed to employees and government entities. Tech companies may also apply for court bonds to cover legal expenses and appeals. This concern is becoming increasingly important as big tech companies and startups alike face legal action for privacy breaches, anti-trust activity, and more.
2. Consider a performance bond.
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