Question

How do you calculate construction bond cost in a year if the loan is 60 million, 15 years is the length  at 3% bond interest?

Answer 1

A construction bond is generally used while bidding for government projects as a token of surety of taking up the project. In case of any delay in execution or non performance of the project by the bidder, the construction bond would be encashed and the financials expenses/costs incurred shall be settled up by the government/agency.

Th cost of a construction bond is generally based on the credit score of the bidder.The better the credit score and the financial strength of the bidder, the lower would be the costs of a bond. Generally the cost of construction bond is calculated as a small percentage of the total bond amount that is required to be in place. In our example above, the the rate has been mentioned as 3% and hence the cost of the construction bond would be 60 million X 3% which is 1.8 million.