What are considered high-risk factors for surety bond underwriting?

In the context of surety bond underwriting, high-risk factors are traits or conditions that indicate an increased likelihood of a bond claimant defaulting on their obligations. Poor credit history and financial instability are key indicators of such risk. A poor credit history suggests that an individual or business has struggled with managing debt obligations in the past, which raises concerns for surety companies about the potential for future defaults. Similarly, financial instability — characterized by inconsistent revenue streams, irregular cash flow, or excessive debt — can also signal that a business may not be able to fulfill its contractual commitments, further heightening the perceived risk.

In contrast, strong credit history, financial stability, and high revenues are all positive indicators that suggest a lower likelihood of default. These factors typically promote trust and confidence from underwriters in the ability of the business to meet its obligations. Therefore, they are not considered high-risk factors but rather favorable conditions that can improve the chances of securing a surety bond.