Although surety bonds are becoming more common in society, many people are not familiar with them. Yet, surety bonds are an important safeguard and/or necessity for many business owners, companies, federal and state government agencies.
Bonds can play a very crucial role in business. They can protect a business and create trust when dealing with prospective clients. Bonds are a legal requirement by states for various industries.
What is a surety bond?
A surety bond is an agreement between three parties: the principal, surety and obligee. The surety provides a financial guarantee to the obligee (i.e. a government agency) that the principal (business owner) will fulfill any contractual obligations.
The purpose of a surety bond is to guarantee a principal’s integrity, performance and financial responsibility. The main purpose of a surety bond is to make sure that the obligee will perform their contractual obligations. It also guarantees compliance with a law or contract
For instance, a small contractor renovating a living room, does not finish the job according to the contract. Or maybe they fail to abide by the state laws and regulations. In both cases, they can have a claim filed against them by the consumer, asking or demanding compensation. The United States requires more than 50,000 types of surety bonds. Further, each state has specific regulations for each license.
Types of surety bonds:
- Bid Bond
- Payment Bond
- Performance Bond
- Ancillary Bond
- Maintenance Bond
- Retention Bond
As a business owner, it’s a must to understand which surety bonds are required, types, and benefits provided to make the business safe. First off, one must understand that surety bonds are not an insurance policy. Instead, they are to act as a guarantee that the required job will be done satisfactorily.
With over 50,000 types of surety bonds and countless state regulations, it is important to pick a surety bond producer who is knowledgeable and has years of experience in the field. It is also important to make sure that the surety bond producer is nationally certified. And it is also vital to check the rating of the surety bond company before choosing to handle any surety bond needs.