Starting your brewing business is an exciting endeavor. While the administrative process you need to go through might not be that thrilling, you need to meet a range of federal and state requirements to launch your brewery.
Posting a brewer’s bond is one of the common criteria you have to comply with. You need a bond to obtain your Brewer’s Notice from the federal Alcohol & Tobacco Tax and Trade Bureau (TTB). In some states such as Massachusetts, Tennessee and Indiana, among others, you may need to post a second bond to get your state alcohol permit.
Whether it’s required on the federal or state level, the purpose of the surety bond is to protect the licensing body and the general public. Typically, your brewer’s bond guarantees your payment of all due taxes related to beer manufacturing and sales.
Getting bonded doesn’t need to be complicated or expensive, though. In fact, if you learn the basics about bonding, you’ll be able to have а smoother bonding process. There are also ways to calculate your bonding costs in advance.
Here are the top proven tips that will help you pay less for your brewers bond premium.
Take care of your personal finances
One of the most important criteria in formulating your brewer’s bond cost is your personal credit score. Sureties that underwrite the bonds consider this factor with highest priority. It informs them about the risk level involved in providing you with financial backing in the form of a bond. They set a higher cost if your personal finances indicate a higher potential risk.
To reduce your bond premium, your first step is to improve your credit score as much as possible. Here are some negative items in your credit history to take care of:
- Repay old debts and collections
- Cover any judgments and tax liens
- Have no outstanding child support expenses
- Reduce your borrowing
It’s also a good idea to keep an eye on your credit report regularly. Check for any issues or potential mistakes. Keeping your report up-to-date guarantees sureties will get the latest information on your personal finances when you apply for a bond.
Provide proof for your professional know-how and business assets
The strength of your business is another important factor that contributes to the formulation of your surety bond cost. How is this assessed? Sureties will consider your business finances, previous experience in the industry, business plan and management methods. These criteria indicate whether your company poses a high bonding risk for the surety.
When applying for your brewer’s bond, provide comprehensive paperwork to showcase any assets and liquidity. If you have loans, convert them into long-term ones in order to boost your current working capital. If the surety provider can see that you are able to pay expenses on potential claims, your bond premium will be lower.
Besides the financial side, make sure to illustrate your industry and managerial experience. If you can prove that you are well-versed in the trade and in running a business, you are likely to get a lower bond price.
Work with a reliable surety bond agency
Careful selection of your surety bond partner can affect your brewer’s bond premium too. You should look for an agency that works with a number of solid underwriters. They should be A-rated and T-listed surety companies because this guarantees that your bonding is secure.
The more underwriting partners an agency has, the more bonding options it will be able to offer you. Instead of just looking at the initial price tag, check what bonding markets it has access to. In this way, you’ll be sure that the agency can secure you a top bonding rate that considers your specific circumstances.
It might also be a good idea to check whether your agency of choice has experience with brewer’s bonds. If it does, it’ll be able to get your bonding faster and better handle any problematic cases.
Your brewer’s bond cost depends on many factors that you can affect before you start the bonding. They may require a long-term investment in solidifying your personal and business finances, but it will pay off.
What is your top advice for paying less for the required bond? Please share your insights in the comments below.
Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps business owners get licensed and bonded.