DEFINITION of 'Completion Bond'

A financial contract that insures a given project will be completed even if the producer runs out of money, or any measure of financial or other impediment occurs during the production of the project. Completion bonds are used in many industries, including major films and construction projects.

They may be part of a mortgage financing deal, and serve to protect both the mortgagor and mortgagee. A third party financier, a completion guarantor company, is typically brought in to provide the financial backstop in the event that original financing is insufficient to complete the project. Also known as a completion guarantee.

BREAKING DOWN 'Completion Bond'

Completion bonds are often standard pre-project material for any large construction project or complex project involving large sums of money and/or multiple investors. They are a longstanding tradition in the entertainment business, where many variables can come into play which may affect the completion of a large movie project.

A third party guarantor will assess the risk to the projects completion and collect a premium for insuring the particular risks to a given project being completed on time, and on budget. Investors become much more likely to get involved, knowing that the project will be completed enough to be sold so they can recoup their investment.

RELATED TERMS
  1. Project Completion Restriction

    A type of clause, seen most often in municipal bond indentures, ...
  2. Project Management

    The planning and organization of an organization's resources ...
  3. Progress Billings

    A series of invoices prepared at different stages in the process ...
  4. Construction Bond

    A type of surety bond used by investors in construction projects ...
  5. Loan-To-Cost Ratio - LTC

    A ratio used in commercial real estate construction to compare ...
  6. Percentage Of Completion Method

    An accounting method in which the revenues and expenses of long-term ...
Related Articles
  1. Personal Finance

    Project Manager: Job Description & Average Salary

    Discover more about the specific tasks that project managers are responsible for and the average salary that can be expected in such a position.
  2. Small Business

    What Exactly Do Project Managers Do?

    While supervision is one important part of the job, a lot more goes into project management than just watching everyone work.
  3. Personal Finance

    Project Manager: Career Path & Qualifications

    Learn more about what project managers job, the qualifications necessary for the position and the most common careers for these professionals.
  4. Personal Finance

    10 Ways to Improve Cash Flow in Construction

    Improving cash flow in construction requires some sector-specific strategies.
  5. Managing Wealth

    What's a Hurdle Rate?

    Hurdle rate has two meanings. In the business world, a business typically makes a decision on a capital project based on the net present value approach. To determine the net present value, the ...
  6. Financial Advisor

    Understanding Net Present Value

    Learn how this value is used to determine the worth of a project.
  7. Financial Advisor

    A Guide on the Risk-Adjusted Discount Rate

    When a project or investment faces higher amounts of risk or uncertainty, it may be appropriate to utilize the risk-adjusted discount rate.
  8. Personal Finance

    Common Interview Questions for Project Managers

    Discover the basic skills needed for a position as a project manager along with common interview questions used in applying for such a position.
RELATED FAQS
  1. Why is a bank guarantee important in a long-term project contract?

    Understand what a bank guarantee is and learn why it is so important to the risk and safety of a long-term project contract Read Answer >>
  2. How do companies calculate the estimated duration of a new project?

    Learn about some of the common methods used by companies to estimate the duration of a new project, including those with ... Read Answer >>
  3. How do you use the profitability index rule when scoping out a project?

    Understand the parameters of the profitability index rule and how this rule is used in corporate capital allocation to determine ... Read Answer >>
  4. What are the differences between percentage of completion and the completed contract ...

    Learn the advantages and disadvantages businesses face when using either the percentage-of-completion or completed contract ... Read Answer >>
  5. How much debt is too much when calculating capital budgeting?

    Learn how companies determine how much debt is acceptable when funding a new project by using the net present value to estimate ... Read Answer >>
  6. How do you calculate costs of capital when budgeting new projects?

    Discover how a company should estimate its costs of capital when budgeting for a new business project using the weighted ... Read Answer >>
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center