Types of Bonds

Bonds may be secured with assignment of savings account & certificate of deposit, corporate surety, deposited securities, cash, or irrevocable letter of credit. 

Bond forms availabe in the forms box in the right hand column are specific to certificate of deposit.  If you choose to use a different method for securing a bond, please work with the district permit administrators for the correct forms.

*See related links for more information about each type of bond instrument.*

Advantages/Disadvantages of Bond Instruments

Assignment of Savings Accounts & Certificates of Deposit

Advantages:

1) Accepted business practice with most financial institutions.

2) Permittee does not have problem qualifying.

3) Permittee earns interest on deposit.

4) Cash readily available to FS if need arises.

Disadvantages:

1) Cash is tied up and not available for operating capital.

2) May become unavailable to FS if permittee files petition for bankruptcy.

 

Corporate Surety Bonds

Advantages:

1) Does not tie up large amounts of permittee’s cash.

Disadvantages:

1) Small operators may not be able to obtain a corporate bond.

2) Premium charged permittee for coverage.

3) Not all sureties are acceptable - must be approved in Circular 570.

 

U.S. Treasury Bills, Notes, Bonds

Advantages:

1) Interest paying securities - permittee collects interest.

2) Easily converted to cash if need arises.

Disadvantages:

1) May be difficult to obtain in remote areas.

2) Cash is tied up and not available for operating capital.

3) Involves more paperwork and time to administer than other instruments.

 

Cash Deposits

Advantages:

1) Not necessary to deal with third parties such as banks and bonding companies.

2) Cash readily available to FS if need arises.

Disadvantages:

1) Deposit does not earn interest.

2) Cash tied up and not available for operating capital.

3) If cash borrowed, permittee pays interest on loan.

 

 Irrevocable Letter of Credit

Advantages:

1) Does not tie up permittee’s capital.

2) Accepted business practice and available through most financial institutions.

3) Financial institutions will accept other forms of collateral that FS cannot, e.g. equipment.

4) Easily converted to cash if need arises.

Disadvantages:

1) Some permittees may not be able to qualify.

2) Small financial institutions may not be familiar with the process.