Money Matters: Surety Bonds

Well, at the age of 30 I've finally become what my father would call a grown man. I'm starting my own business.

Technically I've been running a business for about seven years now, ever since I became a writer for rent, willing to sell words for cold, hard cash. I guess that doesn't really count, though, as I hardly have an office of my own and a company letterhead. I write from whatever hotel room or briefly rented apartment my partner and I are slumming in on any given week, and I sign off my emails with a smiley face.

Now, though, we're going into business. Here in Mongolia there's a hell of a lot of opportunity ready and waiting for anyone reckless enough to grab it with both hands (Mongolian business is notoriously fraught with risk, double-crossing and plain old bullshit). I'm not gonna give away exactly what we're doing, but I'm forming a partnership with an American friend of mine to do a little importing of certain western goods that aren't available right now in Mongolia.

We have a couple of things counting in our favour right now. The first is that my partner has several decades of experience in running successful companies back in the US. He's set up at least 5 businesses, none of which failed and all but one of which were later sold for a handsome profit. The second bonus is that Mongolian business works, in many ways, as it does in the US. This includes surety bonds.

Surety bonds are a contract between at least three parties. The actual mechanisms of a surety bond can get pretty complicated, but the type of bond that most people will be familiar with is a bail bond (or court bond). A defendant will be released on bail on the condition that he/she posts a bond - i.e. a sort of financial promise that he/she will appear for a further hearing. If the defendant doesn't have the funds available to post his/her bail they can approach a bail bondsman, who will post bail on behalf of the defendant. If the defendant fails to appear, the bond agent pays the court.

Now, here in Mongolia the local construction firms are only just getting a good grasp on the idea of a written contract. The country has only operated under a vaguely capitalist system for a couple of decades, so the idea of a contract isn't as deeply ingrained as it is in the west. As a result, a contractor will often renege on a contract as if it's not worth the paper it's printed on.

This is where a surety bond comes in. We can get surety bonds at BuySurety.com that will insulate us from the financial risk of engaging a contractor to build our new offices. We will hire the contractor, paying an initial fee for construction materials, labour and so on and so forth. If all goes as planned the office will be built, at which time we'll pay a final fee. However, if the construction firm vanishes into the night, as is so often the case here, the surety will pay out the bond to us so that we don't end up out of pocket. The contractor will then be liable to the surety for the debt (and at that point we wouldn't give a damn).

It's nice that some of the elaborate financial constructs of the western world have made it out here to the steppe. Without them I'm not sure I'd feel comfortable doing business.