When launching a craft brewery business, you often need to get permission from a state or federal authority, so that you can operate legally. Obtaining a liquor bond is a prerequisite for getting licensed in a number of states across the country. These include:
- New Jersey
- New York
- Rhode Island
- West Virginia
A brewer’s bond is also required from the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) so that you can get your Brewer’s Notice. Similar requirements apply to businesses that sell and warehouse alcohol. Besides understanding the purpose of bonding, it’s important for craft brewers to be aware of the bonding costs when starting the licensing process. You can find a complete overview of bond price formation and useful cost-saving tips below.
What is a liquor bond?
The liquor bond you need to get while undergoing the licensing is also known as an alcohol tax bond. It is a type of surety bond that guarantees your brewing business will comply with relevant tax requirements. In essence, this means the bond ensures you will make all due tax payments to state and federal entities related to transactions with liquor. If you do not meet these obligations, a claim can be made on your bond, so that relevant authorities can collect the due payments.
How is your liquor bond cost set?
The bond price you will end up paying is directly linked to the liquor bond amount that you are asked to provide. The federal or state authorities that require the bonding are the ones who set the bond amounts. On many occasions, you will be asked to post a bond in the range of $2,000 to $7,000, but amounts vary from case to case.
Your liquor bond cost is not the full amount, but only a fraction of it. In most cases, the liquor bond premium is between 1 and 5 percent. If you need to obtain a $5,000 bond, your cost could be as low as $100 to $250.
The bond premium is formulated on the basis of your personal and business financial situation. The surety that you apply with examines your personal credit score, business finances and any assets you might have. That’s how it assesses the risk of getting you bonded.
How to save on bonding costs
While the liquor bond amount you are required to post is not something you can control, you can influence the bond premium you will need to pay on it. As the bond price is based on the financial stability of your business, the stronger your profile is, the lower your costs will get. The most effective way to decrease the bond premium is to work on improving your credit score over time. This is the most important factor that sureties consider when they review your bond application.
It’s also worthwhile to showcase your complete financial paperwork, including any assets and liquidity you have. This can demonstrate that you would be able to cover any potential claims if they arise, which means lower risk for the surety that gets you bonded. Furthermore, if you have debts or other pending payments, it’s a wise step to complete them before applying for bonding.
Last but not least, your professional experience is also a determining factor in setting your bond cost. If you have been in the brewing industry for a while, make sure to showcase this in your application. In order to successfully pass through the licensing and bonding process on the federal and state levels, it’s useful for craft brewers to get well acquainted with the liquor bond costs involved. This would allow for a smoother licensing and can help you save on the bonding.
Still have questions about your brewer’s bond costs? Make sure to share them in the comments below.
Todd Bryant — the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping business owners get bonded and start their business.