Warehouses And Grain Elevators Bond

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Warehouses And Grain Elevators Bond

Public storage facilities (aka warehouses) who deal with grains often need to have a warehouses and grain elevators bond—which is a type surety bond—in order to obtain the license they need to legally operate. To better understand what a warehouses and grain elevators bond is, how this type of bond works, and what it costs, keep reading. 

What is a warehouses and grain elevators bond?

A warehouse grain elevators bond is a unique type of surety bond. The party that is protected by a warehouses and grain elevators bond is the manufacturer or other depositors of the agricultural commodities held in public storage facilities known as warehouses. This bond can also apply to the grain elevator that grains are stored in. A grain elevator is a tower containing a bucket elevator, which scoops up grain from a lower level and deposits it into a storage facility. 

Public warehouse operators are required to maintain records of all agricultural commodities stored, conditioned, handled, or shipped by the facility. Each warehouse is supposed to insure their grain stock against loss of grain. If they fail to do so and they do end up experiencing a loss, a warehouses and grain elevators bond steps in to support the manufacturers and depositors of the agricultural commodities stored in that warehouse. 

How do warehouses and grain elevators bonds work?

To better understand how warehouses and grain elevators bonds work, it’s helpful to understand how surety bonds work in general. There are always three parties that make up a surety bond:

• Principal. The party who needs to secure the warehouses and grain elevators bond is known as the principal. 

• Surety. The surety is the company that issues the surety bond and they will research any claims against the bond and will pay out any valid claims. 

• Obligee. The obligee is the party who requires the principal to secure a specific type of surety bond and this is most often a state government.  

A surety bond is designed to make sure that the public or businesses are protected against fraud or misaction by the principal or in the event that they fail to fulfill a contractual obligation. Surety bonds also help ensure that principals follow all industry rules and regulations. 

If the surety does misstep, the injured party can file a claim against the surety bond. In the case of warehouses and grain elevators bonds, a manufacturer or other depositors of the agricultural commodities held in warehouses can choose to file a claim against the surety, who is a warehouse that stores their goods (most commonly grains). 

If a manufacturer or depositor files a claim against a warehouses and grain elevators bond, then the surety is obligated to investigate the validity of that claim. If the surety finds the claim to be valid, they will pay out the claim. The principal is still on the hook for the full claim amount, but they pay it to the surety not the claimant. A surety bond isn’t an insurance policy, so it’s ideal to avoid any claims. In addition to having to pay out the full claim amount, the principal may also owe the surety additional fees or interest. 

How much do warehouses and grain elevators bonds cost?

How much warehouses and grain elevators bonds cost depends on a wide variety of factors. One of the main factors that determines the cost of any surety bond is the bonding capacity. The bonding capacity is the absolute maximum monetary amount anyone can file a claim for against the surety bond. Then to determine how much the principal will spend on the surety bond, the surety bases the price of the bond (aka the bond premium) on a certain percentage of the bonding capacity.

The percentage a principal is offered is then based on a handful of considerations:

• Years in business

• Industry experience

• Business credit score

• Personal credit score

The applicant’s personal credit score is the most important factor taken into consideration. The higher their personal credit score is, the more likely they are to be offered a lower percentage for their bond premium. Because of this, it can be really helpful for applicants to try to improve their personal credit score before they apply for a warehouses and grain elevators bond or before they go to renew it. One of the easiest ways to improve your credit score quickly is to pay off any revolving forms of credit (like a credit card) and to check your credit report for errors that are causing your score to drop. If you find an error on your credit report you can request that the credit bureau who issues the report with the error on it investigate the issue. If the credit bureau finds a mistake was made or fraud occurred, they will remove it from your report which can give your credit score a quick boost.