Deep in the Weeds With Set Aside Letters

In this article we will peel back the onion on Set Aside Letters (SAL) issued by banks in connection with construction loans. What are they, when they are useful and when are they not?

Here is the essence of such documents:

“The agreement covering the project will provide that the funds in said impound account are… to be disbursed for payment of the (Name of Project) mentioned above and only after (Bank) has satisfied itself that the work paid for has actually been performed… In the event (Borrower) fails to complete the project described herein… all funds remaining in said impound account shall be immediately available to Surety to complete and pay the costs of said project, and in such event, (Borrower) waives any claim or interest in the remaining funds. Surety shall not in any way be obligated to repay said funds so used to (Bank).

This is an irrevocable commitment of funds which is not subject to recall or offset by (Bank).”

Pretty interesting! This letter / agreement keeps the loan in play to fund the completion of the project – even if the borrower (bank customer) fails / defaults.

When Are Set Aside Letters Used?

These documents are a common underwriting requirement when a Site or Subdivision Bond is issued by a surety. If the bond applicant (who is also the developer and borrower) is relying on a construction loan to fund the bonded work, the SAL protects the surety by providing funds for the completion of the work in the event of a default.

What a great idea. So why don’t we use these on everything? Let’s look at another example.

Commercial Projects

The project owner hires a bonded contractor and a bank loan will fund the project. The bank needs a guarantee that the asset / project (which backs the loan) will be built as intended. A Performance and Payment bond accomplishes this and assures there will be no Mechanics Liens against the property for unpaid bills. These two aspects benefit the project owner and the lender. Keep in mind, in a borrower default situation, the bank becomes the new owner of the project.

It is common for the bank to stipulate that a bonded contractor is used for the project, and they may want to be a named beneficiary on the P&P bond – accomplished by issuing a Dual Obligee Rider. Should a smart underwriter also require a SAL from the lender?

On Commercial projects, the normal practice is to NOT obtain a SAL from the lender. Why not? What’s different about this?

a. The bank is a secured lender

b. The bank can subrogate against the borrower’s assets

c. The Dual Obligee Rider serves a similar purpose to the SAL

a. and b. are true, but the answer is c.

Welcome to the Weeds

We’re going in now. The Dual Obligee Rider adds the lender as a beneficiary with all the rights and obligations of the obligee named on the bond (the project owner). And what are they? Obviously they are entitled to make a performance claim and have the project delivered as indicated in the contract.

The named obligee also has obligations, one of the most primary is to PAY the builder. Important: The obligee is prohibited from making a performance claim if they have failed to pay the contractor.

Therefore, when the bank is included under a Dual Obligee Rider, they accept the benefits and obligations. If the borrower defaults, the lender cannot make a bond claim unless they continue to pay the construction loan to the surety. (Now the bank owns the project and the surety has become the contractor.)


Is this starting to make sense? When a borrower defaults on a commercial project, a lender included by Dual Obligee Rider cannot make a claim unless they continue to pay the project funds to the surety.

Deeper Weeds

On Site and Subdivision there is a unique risk – the lender can take a free ride on the surety by having the bonding company pay out of pocket to complete the project.

Site and Sub-D bonds have the local municipality as obligee, not the bank. The bank doesn’t want a Dual Obligee Rider because they automatically receive a financial benefit if the municipality makes a bond claim to demand completion. If the borrower has defaulted, the bank has the opportunity to withhold the balance of the loan (the borrower is gone), and watch the surety pay to complete a project they now own. And they were not even the bond claimant…

This is the risk sureties avoid by requiring the SAL that keeps the loan in play, even if the bond applicant / borrower has failed.

Admittedly, this is a pretty obscure subject, but also somewhat interesting. It never hurts to understand how things fit together. It is how we help you with your tough cases.

Steve Golia is the National Surety Director for Great Midwest Insurance Company, an A-8 carrier specializing in contract surety.

The Factors Which Upsurge the Growth of Diesel Generator Business

In the earlier times, diesel was considered to be very noisy and dirty but thanks to the technological advancement in the engine and the generators, now it has become noise free and is preferred over the fuel as well and are of immense usage in case of back -up for emergency situations. These are readily available in single phase and three phases and their use is not only confined to big industrial houses but to residential and small business and majorly in healthcare services.

This variety of generator are referred to as a substitute and dependable supply of power which can be easily used for commercial and residential purposes. These generators emit electricity with the use of an alternator along with a diesel based engine. All these engines operate with a diesel fuel. Adequate size of the generator is crucial in evading power shortage.

After knowing what diesel generators are and the principle on which they work, let us have a look at its uses, advantages as well as disadvantages.


• These types of generators are extensively used for mining purposes and are in the form of gigantic land wandering trucks which help in extracting the minerals as well as other objects.

• They are also very integral for the healthcare services but it certainly needs a great amount of maintenance and proper refiling, as a tank loaded with them can provide maintenance for almost 8-10 hours for a complete hospital. These generators have stronger calibre and capacity and can be easily put to use in case of uncalled power outage and since hospitals cater to patients, it becomes significant for them to provide backup at all times so that the life of the patients is not on the stake.

• Such generators provide a sturdy back up reserve under power cuts or grid failure or some sort of natural disasters or calamity.


• It requires less maintenance and it has better efficacy.

• It lasts more than other types of gas or fuel.

• It is much safer to store the diesel fuel.

• The generators functioning on diesel require less fuel than the ones running on gas.


• The cost is comparatively higher.

• In case of a blackout, it is difficult to arrange for diesel fuel.

• The sound quotient is higher.

• It requires time to time maintenance in order to maintain the better functioning of the system.

• Such generators have huge and bulky parts.

• These generators are not clean enough when burnt.

After having an insight of these generators, it can be said that even though it has more disadvantages than its benefits, yet it has been chosen over other generators as it has a better working span and thus it is worth the cost it is sold at with time to time maintenance and that makes diesel generators as the utmost consumed generators.

Advantages and Disadvantages of a Wholesale Business

The Wholesaler marketing is when a manufacturer of a product or good sells its supply to a company. The wholesaler will, in turn, sell it to the consumer, possibly even under the brand name of the company.


Everybody can get benefits buying wholesale products because they have a low price. It is a good procedure for smaller shops because they can save money buying items to suppliers. But not only business people can buy in bulk. The only rule to buy in bulk products is to respect certain amounts of things. The wholesalers desire to sell the huge amount of items in order to win more money and then retailers or particular can sell it at higher prices.

Dealers are more interested in purchasing in bulk because they can buy all they need to one distributor. It is really difficult when you need to buy things from different suppliers because sometimes they don’t have enough merchant. However, wholesalers ease this process that retailers can get products easily. It helps to save time and money.

People who deal with distributors have vast differences in merchandise. So, if you are interested in buying there, make sure you will have to choose among million of product.

Distributors can negotiate lower prices with the manufacturers in order to receive discounts or coupons. They can reach an agreement taking into account the number of products they are going to buy. Both get benefits of these deals because they sell more at one time and traders get products at a lower price.


Since the product will not pass through the business owner, the quality and condition of the product cannot be checked. If a supplier is unreliable and irresponsible, problems might arise and may affect your business deeply.

Traders need to have a big storehouse if they want to keep their products. If they have their own warehouse it is better but if they don’t, they would have to rent it, what it means an additional cost. Warehouse are expensive and more if you don’t have one.

A distributor has to control several things: shipping, marketing, and inventory. It is an exhausting work if you don’t have help. A better option would be drop shipping because you don’t have to keep your own merchandise.

Nevertheless, it has more advantages than disadvantages. It means that wholesale is a useful and alive process that is making our lives easier. Traders have a difficult work, but distributors normally offer extra support in order to ease their labor.