Collateral on a the Bond?

[Jack Cherub]

Hi All,

We're pursuing our bond and our insurance agent is requiring we put down $5k collateral until we're up and running (ie. will review in a year and possibly refund some). We were looking at taking out about a $15k bond with $1k withdrawel, which many of you know is the minimum. We'd like to increase the amount (as many on here suggest), but a higher bond will require more collateral, and we need most of our start up capital for the equipment and first round of product. Having to hand out $5k to sit somewhere is not ideal as we could really use that money towards start up, but the surety states we're a new business and they need a guarantee.

Has anyone else been required to put down collateral like this? On the other side, it looks like our premium will be about $320 for the year, which seems reasonably inexpensive. Our personal financials are not amazing, but our investor's are quite strong.

Thoughts?

[Phil]

We didn't have to put up any collateral for ours. I'd shop around with different agencies. I had 3 or 4 working on pricing for mine.

Just my 2 cents.

Phil

[Timoteo]

We didn't have to put up any collateral for ours. I'd shop around with different agencies. I had 3 or 4 working on pricing for mine.

Just my 2 cents.

Phil

Although I don't like Wells Fargo as a banking institution, they can write you a bond quick, cheaper than you're stating with your current situation and no collateral. It's funny how some insurance companies know so little about their products. A smaller company that originally helped me out and was great to work with "Malloy Imrie & Vasconi" St. Helena, CA 707-963-4073 Mary Allen.

[KBFreeRange]

I would shop around, as the decision to require collateral is arbitrary and made by an underwriter who most likely does not understand your business, nor what is standard in our industry. As you mention, the requirement may be a factor based on your credit and financial condition, and in that case you may find this requirement wherever you go. Sounds like your investor is not attached yet, or his/her financials might have played a role in the decision. Keep shopping.

[will]

I'll throw-down a second kudo for Mary Allen at MIV - she writes hundreds of bonds per year. (707) 963-2777 or (707) 963-4073 fax.

Edited July 13, 2010 by will

[delaware_phoenix]

I didn't have any collateral with my bond and it's quite inexpensive. And why need collateral until you're up and running? There's zero liability to the bonding company until then, and the bond actually won't be valid and approved until TTB says so (when you're granted your DSP permit).

Distillery bonds are minor products for most insurance companies, and so it's not surprising that many agents don't know about them and how they work.

[Jack Cherub]

Hey everyone,

Thanks for the feedback and thoughts. After battling this for over two weeks, I followed your suggestion and got in touch with Mary Allen. It appears everything is going through easily with no collateral required, not to mention for a great price, below what I've heard anywhere else. Looks like we're a couple days away from having bonds approved and in hand so we can finally proceed with the TTB application. I try not to count my chickens before they're hatched but I will update you with details once it's official. Thanks!

[Jack Cherub]

Bonds received. Thanks for everyone's assistance.

[Palmetto Coast]

Just a quick note, the number listed for Mary Allen at MIV is their fax number. The office number is (707) 963-2777.

Todd

[will]

Oops, sorry about that, I'll edit the earlier post.