Surety bonds are a common license application requirement. A surety bond binds the company named in the bond to the regulator named in the bond, ensuring that the amount of the bond can be recovered against the company in the event of harm caused by the company’s violation of applicable law. Some surety bond amounts are fixed, while others change on an annual basis based on the volume of activity that the company conducts in the preceding year. In some cases, in lieu of a surety bond, a company can submit cash, a certificate of deposit, or an irrevocable letter of credit. But in our experience, most regulators are unaccustomed to receiving and processing such surety bond substitutes. For this reason, we strongly recommend providing a surety bond whenever possible.
Historically, surety bonds have been issued on a paper form made available by the regulator. When the Nationwide Multistate Licensing System implemented the document upload functionality a few years ago, some regulators began requiring companies to upload copies of their surety bonds to their NMLS Company Forms. Now, the NMLS supports the submission of electronic surety bonds. This option streamlines the surety bond issuance, execution, acceptance, and amendment processes. Consequently, more and more regulators with licenses applied for and maintained on the NMLS are adopting electronic surety bonds.
We often see errors in the completion and execution of surety bonds, which lead to prolonged license application processing. A simple oversight like omitting the comma from the name of the company or omitting the suite number from the address of the company can result in rejection of a surety bond. For this reason, we highly recommend that surety bonds be carefully reviewed by companies prior to submission.
Companies should identify a responsive surety company contact, as surety bond-related needs can arise at any time. For example, a company may need surety bond riders if it changes its name or address. Or a company may need a surety bond continuation certificate to renew its license. Also, if a company surrenders its license, it will need to coordinate with the surety company to ensure that it complies with the applicable surety bond cancellation requirements (as set forth in the bond and the applicable statutes and regulations). Notably, some states require that a company keep its surety bond active for a specified period of time after the surrender of the company’s related license.
For more information on surety bonds and other common license application requirements, contact APPROVED.