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Article
Surety Bonds vs Bank Guarantees: What Companies Need to Know
Topic
Surety BondsAuthor
Shane StewartMost Australian companies use bank guarantees by default. Surety bonds offer the same contractual security without tying up cash or consuming bank facility limits.
If your company holds bank guarantees, you're paying twice — once through the facility fee, and again through the opportunity cost of capital locked away as security.
The problem with bank guarantees
Bank guarantees require dollar-for-dollar collateral. A $5M guarantee facility means $5M in cash deposits, property security or reduced borrowing capacity. For a company doing $50M–$500M in revenue, that's capital that could be funding equipment, hiring or tendering for larger contracts.
Banks also charge non-utilisation fees on the full facility limit — whether you draw on it or not. Add the facility line fee, issuance fees per guarantee and the weighted average cost of tied-up capital, and the effective annual cost of a $5M bank guarantee facility sits around 4–5%.
How surety bonds work differently
A surety bond provides identical contractual security — same AS2124/AS4000 wording, same unconditional and on-demand terms — but it's unsecured. The surety provider (an A-rated insurer regulated by APRA) takes only a Deed of Counter Indemnity, not a registered security interest over your assets.
This means your bank facilities remain available for operational lending, equipment finance and working capital. Your assets stay unencumbered. And the annual cost typically sits at 1–2% of bond value, roughly a third of the effective cost of a bank guarantee.
The commercial impact
For a contractor holding $10M in bank guarantees, switching to surety can release $10M in borrowing capacity overnight. That's not a theoretical benefit — it's the difference between tendering for three projects simultaneously or being constrained to one.
One BCS client, a formwork contractor, credited surety bonds with enabling growth from $30M to over $100M in turnover. The capital that was previously locked in bank guarantees was redeployed into equipment, people and project capacity.
Who qualifies for surety?
Surety underwriters assess performance capability rather than collateral — your track record, management experience, financial stability and project pipeline. Companies with $20M+ in revenue, a solid balance sheet and a demonstrable track record in their sector are typically strong candidates.
Next steps
If your company currently relies on bank guarantees and you want to understand whether surety could free up working capital, a 30-minute review with a specialist broker is the fastest way to find out.
