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Compact facility for trades and small builders
A smaller facility with simplified assessment, standard wordings for performance and warranty, quick issue through an online portal.
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Surety bond insurance in Germany: guarantees without tying up your bank line
If you win contracts from German public bodies or large private clients, you will almost always be asked for security: a performance bond until handover, a warranty bond afterwards, an advance payment bond for deposits. When your bank issues these guarantees, each one eats into your credit facility. A surety insurer (Kautionsversicherer) issues them from a separate facility instead, so your bank lines stay available for materials, wages and investment.
The question almost everyone asks first
Does a surety bond protect my company?
No, and that is the most common misunderstanding. A surety bond protects the beneficiary, usually your client. If the client calls the bond, the insurer pays and then recovers the amount from you. The benefit for your business is financial: bonds issued by an insurer do not count against your bank credit line, and a retention released against a warranty bond means cash in your account today rather than years from now.
How a surety facility works
The insurer first assesses your company much like a lender would: financial statements, equity, order book. It then grants an overall facility. Within that limit you request each bond as you need it, usually in the wording your client specifies, and receive the signed document within a few working days.
When a bond is returned, for instance at the end of the warranty period, that amount becomes available again. Companies that do not chase returned bonds keep paying fees on guarantees nobody needs any more, so keeping a register of open bonds is part of running the facility.
The bond types you will meet in Germany
A performance bond (Vertragserfüllungsbürgschaft) secures the client until acceptance of the works. A warranty or defects bond (Gewährleistungsbürgschaft) replaces the cash retention after acceptance, so the client pays out the final invoice in full. An advance payment bond (Anzahlungsbürgschaft) secures deposits, which is common in machinery and plant engineering.
There are also more specialised forms: security under section 650m of the German Civil Code when you build for private consumers, bid bonds for tenders, customs and tax bonds, guarantees for commercial rent deposits and the guarantees developers give to buyers who pay before completion. Not every insurer writes all of them.
What German construction law says
Under section 17 of the VOB/B, the standard terms for German construction contracts, a contractor may provide agreed security by a guarantee from a credit institution or a credit insurer. An insurer's bond therefore ranks equal to a bank guarantee. For public clients the VOB/A caps the amounts: security for performance should not exceed 5 percent of the contract sum, security for defects 3 percent of the final account. Where the contract sum is below 250,000 euros net of VAT, public clients are to waive performance security and as a rule defects security too.
Under a consumer building contract, meaning a new house or a comparably extensive conversion for a private consumer, section 650m of the Civil Code requires the contractor to provide security of 5 percent of the agreed total price with the first instalment. The contract cannot exclude this. Surety insurers routinely issue bonds for this purpose.
On demand bonds: read the wording
Some clients ask for a bond payable on first demand. The surety must then pay as soon as payment is requested, and any dispute about the claim comes later. For you that means the money leaves quickly while the insurer's recourse remains. The German Federal Court of Justice has repeatedly held clauses in standard construction terms requiring such bonds to be invalid. Check the wording before you sign the contract.
What is covered
- Performance bonds for public and private clients
- Warranty and defects bonds to release cash retentions
- Advance payment bonds
- Security under section 650m Civil Code for consumer building contracts
- Bid bonds for public tenders
- Customs, tax and other bonds towards authorities, depending on the insurer
- Commercial rent deposit guarantees, depending on the insurer
- Issue in the client's own wording after review
What is not covered
- Rent deposits for private tenants and their homes
- Your own loss: if the insurer pays out, it recovers the amount from you
- Bonds beyond the agreed facility limit
- Guarantees for your bank loans
- Bonds for companies outside the agreed group without a separate agreement
- Protection against your own customers failing to pay
Who needs it
- Construction companies and trades working for German public clients
- Main contractors and subcontractors facing regular retentions
- Machinery and plant manufacturers securing customer deposits
- Businesses whose bank credit line is filling up with guarantees
- Builders working for private homeowners who need section 650m security
Who does not need it
- Businesses that are never asked to provide security
- Start ups without financial statements an insurer could assess
Wheel of misfortune
Spin the wheel of bad luck
Six things that really happen. The wheel picks yours and shows who pays.
Cost:
Budget policy
Strong policy
See all six cases
- Public client asks for security, a bond for part of the contract sum. Budget policy: pays, Strong policy: pays. The basic case: the performance bond comes out of the surety facility and your bank line is untouched.
- Client holds back a retention, part of the final invoice. Budget policy: pays, Strong policy: pays. A warranty bond replaces the retention, and the client pays out the balance.
- Client insists on its own form, delayed payment. Budget policy: pays in part, Strong policy: pays. Compact facilities often use standard texts only. Strong facilities review and accept the client's wording.
- Large contract exceeds the limit, the contract itself. Budget policy: does not pay, Strong policy: pays in part. There is no bond beyond the limit. Good insurers increase it after a fresh review, but there is no guarantee they will.
- Client calls the bond, the amount paid, recovered from you. Budget policy: does not pay, Strong policy: does not pay. The insurer pays the client and then recovers the money from you. That is not a weakness of the policy, it is how every guarantee works.
- Deposit for a custom machine, the entire deposit. Budget policy: pays in part, Strong policy: pays. Advance payment bonds are not part of every compact facility. In mid market facilities they are standard.
What it costs
You pay an annual fee (Avalprovision) as a percentage of each bond for as long as it is outstanding, and depending on the insurer a minimum premium and issuing charges. The rate depends mainly on your credit standing. There are no reliable independent price comparisons, so we do not quote rates here.
What drives the premium
- Credit standing, equity ratio and recent results
- Size of the facility and types of bond
- Duration of each bond, often several years for warranty bonds
- On demand wording or waivers requested by the client
- Additional security such as guarantees from shareholders
- Industry and contract profile
The rate is only fixed after the credit assessment. Compare it with your bank's guarantee terms; most businesses use both side by side.
The policy levels on the market
02
Mid market facility
Individual credit assessment, all common bond types including advance payment and section 650m security, bonds drawn as needed.
03
Syndicated and group solutions
For large limits: several insurers share the risk, bonds for subsidiaries and joint ventures, guarantees abroad.
How to recognise a good policy
| Criterion | Minimum standard | Strong policy | Why it matters |
|---|---|---|---|
| Facility size | covers current needs | covers needs with headroom for large contracts | A full facility can cost you the next contract. |
| Bond types | performance and warranty | also advance payment, section 650m, bid, customs and rent | Every bond that does not come from the bank keeps your credit line free. |
| Wording | standard texts only | review and issue in the client's wording | Many clients only accept their own form. |
| Collateral | personal guarantees from shareholders | no or limited extra security | Counter guarantees move the risk onto private assets. |
| Issue time | a week or more | a few working days or online | Without the bond, the client will not release deposits or retentions. |
| Bond register | you track them yourself | overview of all open bonds with expiry dates | Forgotten bonds cost fees and block the facility. |
| Joint ventures | not provided for | bonds for joint venture shares available | Larger construction contracts are often awarded to joint ventures. |
Insurers on the German market
Allianz Trade, Atradius and Coface are major surety writers in Germany but operate as branches of insurers from other EU states and are therefore not on the BaFin list of companies under German federal supervision. The insurers below are under federal supervision and write surety business. This is a market overview, not a statement about who we work with.
| Insurer | Background |
|---|---|
| R+V | insurer of the German cooperative banks, surety bonds for businesses |
| VHV | Hanover based insurer with a construction focus, surety for builders and trades with an online portal |
| Zurich | surety in several lines, the smallest aimed at trades, developers and general contractors |
| Gothaer | Cologne based insurance group, surety for businesses since 2023 with a construction focus |
| Württembergische | Stuttgart based insurer, surety for commercial clients, commercial rent deposits as a separate product |
Compare the wordings of all tariffs Surety bonds 5 tariffs from 4 providers, as of 24 October 2026
Legal basis and sources
Products and add-ons
Surety facility (Kautionsrahmenvertrag)
The standard: one overall limit from which you draw individual bonds as needed.
Single bond
One bond for one contract without a standing facility. Useful if the need is rare.
Section 650m security
Security for private homeowners during construction, often a separate module with simplified issue.
Developer guarantee
Security for buyers who pay before completion, in line with German developer regulations.
Bank guarantee (Bankaval)
The alternative: your bank guarantees, but counts the amount against your credit line.
Myth or truth
True or false?
Five things people say about this insurance. Guess first, then see the answer.
A surety bond pays if my company makes a mistake.
This is false.
Wrong. It pays your client and then recovers the amount from you. Damage caused by your own errors is a matter for liability insurance.
German public clients must accept bonds from insurers.
This is true.
In principle, yes. Under section 17 VOB/B security may be provided by a guarantee from a credit institution or credit insurer, provided the VOB/B applies and the guarantor is authorised in the EU, the EEA or a state party to the WTO Government Procurement Agreement.
With a surety facility I no longer need bank guarantees.
This is false.
Usually not. Many businesses use both to spread their limits. The aim is to keep the bank line free for day to day business.
A bond that is never returned keeps costing money.
This is true.
True. The fee runs until the document comes back or the beneficiary releases it. Keeping track of expiry dates saves real money.
Surety bonds are only for large construction groups.
This is false.
No. Craft businesses and smaller builders can get compact facilities with simplified checks, usually once they have a few years of accounts.
Common mistakes
- Showing the client's required wording to the insurer only after signing the contract
- Not reclaiming warranty bonds once the warranty period has ended
- Treating a surety bond as insurance for your own business
- Comparing only the fee and overlooking personal guarantees demanded from shareholders
- Choosing a tight facility and then being unable to bond a large contract
Frequently asked questions
Questions and answers
Frequently asked
What is the difference between a surety bond and a bank guarantee?
Legally both are guarantees,
and under section 17 VOB/B an insurer's guarantee ranks equal to a bank's.
The difference is in your financing: a bank guarantee counts against your credit line,
a surety facility does not.
That leaves more room for working capital.
What happens if the client calls the bond?
The insurer reviews the claim and pays the client,
or pays immediately if the bond is payable on first demand.
It then recovers the amount from you.
A surety bond does not take the risk off your hands, it replaces the bank as guarantor.
Will I have to provide collateral?
That depends on your credit standing.
With strong financials many insurers waive extra security;
for smaller companies they often ask shareholders to share liability.
This is an important point when comparing offers.
How quickly can I get a bond?
Once the facility is in place, usually within a few working days,
and often the same day for standard wordings issued through a portal.
Setting up the facility takes longer because the insurer reviews your accounts.
Can I use this for the rent deposit on my flat?
No, this page covers bonds for businesses.
Rent deposit products for private tenants are a separate market we do not compare here.
Some surety insurers do issue guarantees for commercial rent deposits within a business facility.
Do German public clients accept an insurer's bond?
Yes, as long as the insurer is authorised in the EU.
The VOB/B names credit institutions and credit insurers on an equal footing.
Many contracting authorities prescribe their own form, which the insurer then uses.
How much does a surety bond cost?
You pay an annual fee as a percentage of each outstanding bond,
plus charges depending on the provider.
The rate is set individually, mainly based on your credit standing.
There is no flat price without an assessment.
When do I get a warranty bond back?
When the agreed defects liability period ends,
generally four years under the VOB/B and five years for buildings under the Civil Code.
You have to request the document back from the client and return it to the insurer;
only then do fees stop.
Why use a broker?
Because facility size, collateral, accepted wordings and issuing processes differ widely,
and insurers' appetite varies by industry.
We obtain quotes, compare the terms and help you keep track of open bonds.
The insurer pays our fee.
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