What are Surety Bonds and Why do You Need Them?
A surety bond is a three-party agreement between you (the principal), the surety company, and the obligee. The obligee is usually a government entity that requires the surety bond as a condition of awarding you a license, permit, or contract. The purpose of the surety bond is to protect the obligee from any financial losses in the event that you (the principal) fail to fulfill the terms of your agreement. In other words, if you default on your obligations, the surety company will step in and cover any resulting damages up to the full amount of the bond.
There are many different types of surety bonds, each with its own specific purpose. Some of the most common types of surety bonds include
Licensed professionals, such as contractors, real estate brokers, and insurance agents
Businesses that sell alcohol or tobacco products
Federal, state, and local government contracts
CONTRACTOR BOND . Which guarantee that contractors will perform their work in accordance with all applicable laws and regulations.
COMMERCIAL BONDS. Which cover a wide range of businesses from construction companies to non-profit organizations.
IDUCIARY BONDS. Which protect clients’ assets from mismanagement by fiduciaries like trustees, guardians, and executor
PERFORMANCE BONDS .Which guarantee that contractors will complete their projects according to the terms of their contract
PAYMENT BONDS. Which ensure that contractors will pay their subcontractors and suppliers in a timely manner.
If you’re thinking about starting a business or applying for a professional license, there’s a good chance you’ll need to get a surety bond first. Though they may seem confusing at first glance, surety bonds are actually quite simple: they’re just agreements between three parties designed to protect against financial losses resulting from defaults. There are many different types of surety bonds available, so be sure to research which one is right for your business before moving forward. Thanks for reading!
