Guest Column: How Travel Agencies Can Save On Bonding Costs

Travel agencies in at least six states are required by law to obtain a seller of travel bond. These bonds serve to guarantee that bonded travel agents will comply with state laws. They provide protection to the public and the state by extending compensation to those parties, in cases in which travel agencies violate said laws.

To get their seller of travel bond, agencies need to pay a bond premium. The bond’s cost is determined on the basis of the bond amount required by the state, and the information provided by the applicant. Every applicant will get a different cost, but there are ways that travel agencies can reduce their bond cost.

Read on to find out which states require bonds, in what amounts, and how you can reduce the cost of your travel agency bond.

States that require seller of travel bond
At least six states currently require a seller of travel bond as a condition for issuing a license to travel agencies. These are:

• California
• Florida
• Illinois
• Iowa
• Virginia
• Washington

Bond amounts in these states differ significantly. California, Virginia and Illinois determine the bond amount on a case-by-case basis. The bond amount for California, for example, is determined so that it should be “adequate” to cover the highest single amount of customer money, if the travel agency were to have a trust account instead of a surety bond.

The bond amount in Iowa is $10,000, and in Florida $25,000, or $50,000 if the seller of travel also offers vacation certificates. Finally, travel agency bonds in Washington range between $10,000 and $50,000, depending on the annual gross income of the travel agency.

To get the bond, though, agencies don’t need to pay those amounts. The cost of obtaining a bond is based on factors such as your personal credit score, your financial statements, your liquidity and assets, but also factors such as your industry experience.

Applicants who have a high credit score typically receive very low quotes on their bond, as low as 1% of the total bond amount or even less. And if you’ve had a higher rate previously, there are ways to reduce your rate and save on bonding costs.

How to reduce the cost of your seller of travel bond
The most important factor determining the cost of your surety bond is your personal credit score. Typically, a credit score of 700 FICO or above is considered a “good” score by surety bond companies, and applicants with such scores get lower rates.

So when you set out on improving your financials in order to get lower bond rates, your credit score is the first thing to have a look at. Factors that negatively affect your credit score include:

• Unpaid debts and bills or late payments
• Outstanding payments on private or government liens
• Too many credit cards and high credit card balances
• Increase in debt/credit ratio
• Inaccuracies in your credit report

By working on improving or eliminating any of the above factors, your credit score is likely to improve as well, which sends a signal to bond companies when they review your application.

Beyond your credit score, another important step you can take is to improve your financial statements. Good financials signal to sureties that you are reliable, and capable of staying on top of your finances.

If you are not sure which format would be best for your financials or how to present them properly, consult an accountant instead of trying to handle this yourself. Working with an accountant has the added benefit of you looking good in front of sureties, because it shows that you are willing to conduct business in a professional manner.

Finally, you may also benefit from increasing your liquidity. This can include reducing your business’s overhead costs, letting go of unnecessary assets, and managing your accounts payable and accounts receivable.

Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping travel agencies get bonded and start their business.