When you secure a construction project, you might have to submit a performance bond to assure the owner of the project that you will match up to the requirements of the project. This is mostly a requirement when you have secured the tender as the owner of the project seeks an assurance that in case you either fail to complete the project or completes is sub-standardly they will get a refund on the cost they incurred.
Performance bonds are however not used to benefit the owner of the project in any way. This is just a safety or security measure to ensure that the obligee does not incur losses in the case of sub-standard or incomplete work. It is only under such circumstances that a performance bond may be issued in favor of an obligee.
Do not confuse performance bonds for bid bonds
Although the two might sound familiar, they cannot be used interchangeably. While bid bods are used while bidding for tender performance bonds are required once the tender has been awarded to a contractor. Another difference is their purpose. Bid bonds are used to give surety to the obligee that if the contracting company does not sign the contract after being awarded the tender for whatever reason they will be refunded the amount of the contract up to the next lowest bidder.
Performance bonds, on the other hand, are used to give surety that once the contract has been signed the contracting company will honor the agreed terms and deliver as required in the contract. A Performance Bond can, however, be issued to an obligee in the case of failure of the contracting company to either deliver the quality agreed on the contract or failure to finish the contract. This can be caused due to insolvency or a deficit in the working capital.
Momentum Credit, however, solves both the two instances in which you might not be able to perform according to the contract terms. This is because apart from offering the performance bond itself we also offer working capital solutions like invoice factoring and logbook loans. You can also click here to find out more about asset financing in Kenya.
How it works
After getting the tender you will be notified to submit a performance bond. This can be acquired from a bank or another offering financial institution. This becomes the principal. The surety or the body under which will issue the bond in the case of its application. You will be required to offer a cash deposit of at least 10% to 30% the total amount of the bid. You will then remain to pay premiums to the surety in case you under-deliver or fail to complete the project.
At Momentum Credit we offer performance bonds at a timely duration of fewer than 24 hours. We do not require you to open an account thus making the whole process easier and much faster. We moreover, do not take any physical collateral including land and title deeds or logbooks either. This makes us a viable option for small and medium-sized business who find themselves on the verge of collapse as other financial institutions like banks require such collateral. For performance bonds we only require up to 30% cash cover security, this is ideal for small and medium-sized business SMEs. To get a performance bond, contact us or click here to find out more (link to performance bonds as a product).
When using performance bonds you stand to avoid legal actions that can destabilize your business. This include charges that come in case you fail to complete the construction as required or within the time frame. Performance bonds also give you as a business a chance to service many contracts as you are sure of a refund to the obligee in case the project demands so. This prevents saving many funds allowing cash flow which is key in business.
This not only ensures growth to your business but also more opportunities thus increasing your network. Performance bonds also make a business get more asset financing options making the project more successful. This makes it a win-win for both the bidder and the obligee. This is because the bidder gets a chance to do business and the obligee is assured of the project being undertaken successfully and no losses in case it is not.