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 Management

    The planning and organization of an organization's resources ...
  2. Capital Project

    A long-term investment made in order to build upon, add or improve ...
  3. Progress Billings

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

    A project management term for the combined objectives and requirements ...
  5. Percentage Of Completion Method

    An accounting method in which the revenues and expenses of long-term ...
  6. Initial Cash Flow

    The amount of money paid out or received at the start of a project ...
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. 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.
  3. 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 ...
  4. Investing

    An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  5. Small Business

    Capital Budgeting

    Capital budgeting is a planning process used by companies to evaluate which large projects to invest in, and how to finance them. It is sometimes called “investment appraisal.”
  6. Investing

    Invest In Hollywood With The Film Futures Market

    It's been 10 years in the making, but you can now bet on which movies will hit it big, or which will flop.
  7. Investing

    Style Matters In Financial Modeling

    If you're looking to get a job as an analyst, you'll need to know how to work it.
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. 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 >>
  3. When do I need to project run rates for my business?

    Learn some of the reasons why businesses project run rates; discover why companies rely on such a simple metric and how it ... Read Answer >>
  4. How do you use discounted cash flow to calculate a capital budget?

    Learn how discounted cash flows are used in creating capital budgets as a part of the net present value and internal rate ... Read Answer >>
  5. Do you discount working capital in net present value (NPV)?

    Learn why changes in net working capital (NPV) should be included in net present value calculations for analyzing a project's ... Read Answer >>
Hot Definitions
  1. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  4. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
Trading Center