Surety Bond Vs Letter Of Credit – What’s The Difference?
There are many financial products that help a construction company to grow, both in the private and public sector. Two of these products, a surety bond and a line of credit, can be helpful in becoming more successful. Knowing the difference between the two can help your business to grow. Surety Bonds vs Lines of Credit To start, both surety bonds and lines of credit (LOCs) provide financial protection. Yet surety bonds tend to take that protection a step further. By definition, a surety bond is a three party agreement between the project owner, the surety bond producer and the contractor. Two of the most utilized surety bonds in the industry are performance bonds and payment bonds. A performance bond ensures that the contractor upholds the contractual obligations specified in the contract. A payment bond guarantees that the contractor pays all associated with the project. This can be anyone from laborers to subcontractors, material suppliers and other employees as specified in the contract. A LOC is a cash guarantee. It allows the owner to call upon it on demand. It works as a payment to the owner, but is an interest loan for the contractor. A surety bond is based...
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