What is a Surety Bond?

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Definition: sur•e•ty bond

A surety bond is a promise by a surety or guarantor to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal’s failure to meet the obligation. A surety bond is similar to an insurance policy except it involves three parties instead of two.

  1. An obligee requires the bond. Obligees are typically government agencies.
  2. The principal can be an individual or business which purchases the bond to guarantee future work performance, such as fulfilling a contract.
  3. The surety or guarantor vouches for the principal and backs the bond. However, should the principal fail to meet his obligations and the oblige files a claim, the surety company will expect the principal to reimburse them for any claims paid.

Common types of surety bonds

  • License and Permit Bonds are required before business owners can get their business licenses.
  • Contract Bonds are often required of Construction professionals before they can work on publicly funded projects.
  • Business Service Bonds are not generally required, but some business owners choose to buy them to protect clients against dishonest acts of employees while on the customers’ premises.
  • A Court Bond encompasses many more specific bond types used for various court proceedings. Judicial bonds include such bonds as an appeal bond, while probate or fiduciary bonds are required of individuals who are appointed by the court to care for others or manage others’ assets.

Example

As an example of a license and permit bond, Dave (principal) is a new auto dealer and before he can become licensed to sell a car to a consumer, he is required by the state (obligee) to provide a surety bond (surety) to guarantee his dealership will comply with state regulations. If consumer, Joanne, wishes to purchase her car from Dave’s Car Dealership, the surety bond protects Joanne against losses if Dave, his dealership, or his employees commit fraud or other wrongful actions.

A Competitive Advantage

While surety bonds bring peace of mind to “the Joannes” of the marketplace, they also deliver great benefits to “the Daves.” Business Services bonds, for example, can be a competitive advantage. An example of this type of bond might be the owner of a pet sitting business posting a surety bond to protect his customers against any employee theft. Advertising that his business is bonded shows his potential customers that he is trustworthy and ready to do business.

 More Questions?

Check out our FAQ page!  Should you need or choose to buy a surety bond, SuretyGroup.com has been underwriting surety bonds throughout the U.S. for more than 35 years. When you work with us, you enjoy the unique benefit of dealing with a team of highly experienced surety agents with in-house underwriting authority. This allows you to receive competitive, low rates, quick approvals, and immediate bond delivery. In most cases, your bond will be delivered within 24 hours after you apply for it. If you have any questions, please call our surety experts today at 1‑844‑432‑6637 or email info@suretygroup.com.

SuretyGroup.com – Your Online Bond Provider. Great Rates. Solid Advice. Quick Solutions.

Comments

  1. Shad Morris says

    I have been hearing a bit about surety bonds, and I wanted to know what they were used for. It’s interesting that they are used by obligees to help work performance. It’s nice that people can get these to help with their construction.

  2. Dennis Sanchez says

    You wrote that a surety bond can be used to protect customers against employee theft. I had heard about the benefits of surety bonds in the past, but had never heard about this specific aspect. Having that guarantee adds another level of trust and comfort to the customers while they are in a business. Thanks for the very informative blog.

  3. Frank Delaware says

    Until now, I didn’t really know what a surety bond was, let alone what it did for a business. The one thing that really stood out to me is that they are required before a company can get their business licenses. It’s good to know that there are ways to make sure that people are serious about what they are doing.

  4. Annika Larson says

    I have heard about contract bonds lately, and I was unsure what exactly it was. This article was very helpful to explain the basics of surety bond and the different types. I can definitely see why these kinds of bonds would be necessary for the business environment, especially with government or publicly funded projects. It is definitely a great way to ensure completion of a project.

  5. Bernard Clyde says

    I had no idea there were so many different types of surety bonds out there. It’s good to know that these are specifically in place to protect the obligee in case there are any accidents or issues with the principal. I think it’s important to consider how a court bond, for example, could help someone to avoid having to pay such a high fine if they are certain to keep their word and make it to certain court dates. If both parties are fulfilling their obligations, these bonds can work out really well for both sides.

  6. Harper Campbell says

    It’s interesting to learn that when it comes to surety bonds that there are a lot of different kinds out there to choose from. I think that it might be good for businesses to know that there are bonds for them just in case situations arise with their clients. This is something that should be looked so that they will have the money they need.

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