Bond Requirements: Minimum $250,000 for Domestic TSPs and $500,000 for International TSPs
Since the recession and downturn of 2008-2010, we have witnessed a large number of firms using built up equity to sustain their business.
Although the economy has improved, there has not been time to rebuild to the levels of equity that were in the market in 2008. Bond underwriters look for the TSP or indemnitor of the bond to be able to quickly, with cash, repay the bond if it is called.
In addition to requiring positive profits that are at or above average, bond underwriters will require:
- Up to 2 times the bond limit in combined net worth
- Net Quick Ratio of 1:1
- Minimum Requirement will be CPA complied financial
- Debt to equity ratio no greater than 3:1 and profitable 3 out of prior 4 years
- Credit score of owner of at least 670 and no prior losses to
With these, bond companies will look for a minimum of $500,000 of equity in liquid assets for domestic TSPs and $1,000,000 for international TSPs.
If the TSP and/or indemnitor do not meet these requirement, then a substandard bond market or complete lack of options could exist.
Substandard bond companies will charge a premium on the bond of as much as 10-15% of the bond value. They will require collateral of property, homes and other non liquid assets of the indemnitor.
Assuming the TSP and/or indemnitor has the equity, the additional limit of these new bonds will cost on average 2-5% of the new and increased additional limit.