Bond Financing Example

The surety financing It is a financing in which a surety company, makes a contract in which an individual or a company undertakes to make a payment for a reduced amount to the surety, while the surety pays the rest of the money to the third party to whom corresponds.

A surety pays or invests on behalf of the interested party an amount previously agreed by means of a contract, and guaranteed by some people who request it.

To make said investment or payment, the surety company delivers a check or bill for the amount, and this emulates the functions between a promissory note and a check, thus allowing the business to be carried out.

As it is a bet, the surety company can lose large amounts of capital, therefore it is required that there be a guarantee in order to establish the guarantee; The collateral is usually a property or real estate, but it is not in the circumstance of the mortgage. This financing is formalized with a contract and by the federal law of surety institutions.

In the event that the business is fruitful, the surety will receive a considerable commission and if it is lost, it has the possibility to collect the percentage established in the contract.

In the particular order, it is used to obtain short and medium term amounts for unforeseen events or quick resolution businesses.

Example of financing by surety:

Between two people the dispute for the property of a property is presented, and in the corresponding court each of The parties must, by court order, guarantee the right of the other party to the property and the damages that could be cause.

For this, the lawyer of one of the companies, finding himself insufficient to pay the bail established by the judge, and not having the corresponding asset, processes a bond contract so that a surety company covers said amount with a bill or check that will be presented at the court.

The lawyer went with a representative of the company he defends, and guarantees the bond with an amount of 20,000.00 twenty thousand pesos and puts as a guarantee the industrial machinery that is covered by the invoices corresponding.

The surety takes the twenty thousand pesos and creates a bill for an amount of 250,000.00 (two hundred and fifty thousand pesos), which is presented in the corresponding court.

In the event that the company loses the instance, it may collect the difference of the lost investment plus 4% interest for each month that the judicial instance lasted.

In the event that the instance is won, the surety will receive the 20,000 pesos as profit plus a commission and the corresponding interest for the time that the litigation lasted.

Thus, the company was able to spend much less reduced than if the deposit were paid directly.