Surety or Letters of Credit: Advantages and Disadvantages

Surety bonds and letters of credit are financial instruments used by career colleges to guarantee obligations and secure funding. A surety bond is a contract where a third party, the surety, guarantees that the college will fulfill its contractual or financial obligations. If the college fails to do so, the surety compensates the affected party. Surety bonds can be advantageous for ensuring compliance with regulatory requirements or securing performance guarantees and are generally more cost-effective than letters of credit, particularly as interest rates rise. Using an agent who can support your college through the approval process is recommended. Letters of credit, on the other hand, are agreements from a financial institution that guarantee payment to a beneficiary if certain conditions are met. They require collateral and involve bank fees. Both instruments offer protection but come with different costs and requirements. Career colleges should assess their specific needs and consult with financial advisors to determine the best option for securing their obligations and managing financial risk.

NACC has partnered with HUB Insurance to provide a one-stop-shop for Commercial Insurance, Employee and Student Benefits, Group Retirement, Surety and Personal Insurance. To discuss your college’s unique needs please complete the form found here: HUB Inquiry Form