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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10628
Experience:  30 years of corporate, litigation and international law
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i HAVE A VERY IMPORTANT QUESTION RELATING TO SURETY LAW .I

Customer Question

i HAVE A VERY IMPORTANT QUESTION RELATING TO SURETY LAW .I RUN A SMALL BUSINESS WITH 3 EQUAL OWNERS ,2 ARE MINORITY FEMALES AND ME A SENIOR CITIZEN . OUR COMPANY IS REQUIRED TO HAVE PROOF OF "FINANCIAL RESPONSIBILITY"   WHEN WE STARTED THE CO. IN 2005 WITH BASICALLY NO REVENUE WE WERE ABLE TO ACQUIRE A SURETY BOND FOR THE REQUIRED $75000 THEN WHEN THE ANNUAL BOND WAS TO BE RENEWED, AT THE LAST MINUTE THE SURETY MADE US PUT UP A CASH DEPOSIT IN THE FORM OF A CD DEPOSITED WITH BOA TIED TO A LOC AT A COST OF 1700 DOLLARS ANNUALLY . THIS IS IN ADDITION TO THE $1500 TO THE SURETY/INS BROKER. I DID NOT HAVE TIME TO QUESTION OR LOOK ELSEWHERE FOR ANOTHER BOND . SO HERE IHAVE 75000 CASH IN A CD EARNING LESS THGAN 1 % I AM IN DIRE NEED OF THIS MONEY FOR OPERATING INCOME AND TO REPAIR MY RESIDENCE IN GALVESTON THAT WAS SEVERLY DAMAGED BY HURRICANE IKE . I HAVE APPEALED TO THE SURETY FOR RELEASE OF THIS COLLATERAL BUT THEY ARE PLAYING HARDBALL AND HAVE DENIED EVERYTHING ARE GOING TO DRAW DOWN LC
Submitted: 8 years ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 8 years ago.
You should focus on the FMC to see if they can relax their requirements for your company. If they insist on a bond, see if they will accept a standby letter of credit in lieu of a bond. If they will, see if you can negotiate with B of A putting up only a portion of the collateral to secure the l/c in cash with some in some other form of collateral. You have a two year history with no claims. That might get some reduction in the cash collateral portion of the security. You should also speak to other local banks. Many of the smaller local banks have more flexibiilty than large banks like B of A. The key is trying to provide collateral that is not cash. YOu will not avoid needing a large portion of the collateral being cash but any relief you get will free up cash.

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Customer: replied 8 years ago.
thanks the FMC cannot relax their requirements
surety will only accept l/c from short list of super banks
Expert:  Richard - Bizlaw replied 8 years ago.
I would discuss with FMC if they will accept a standby letter of credit as a bond. They are essentially the same thing. Then see if you can negotiate a better deal with a different bank. That is the only solution I can come up with. Thank you for accepting the answer.