How Does A Surety Bond Work?
The whole purpose of surety bonds is to make sure that if someone is hired to do work, they complete it. A surety bond offers safety for the group paying for the service. If something gets in the way and the work isn’t done as specified in the contract, the surety bond provider will pay those costs upfront. They will then collect the costs from the group that was responsible for providing the work.Â
There are two main types of surety bonds available:
- Contract Surety
- Commercial Surety
Contract surety is often used in the construction industry to protect the bond’s owner from financial loss if their contractor doesn’t fulfill a contract. A commercial surety is used as an agreement that the business or individual providing services will follow all legal obligations that are required in a contract.
Who Pays For A Surety Bond?
The principal, or person who must fulfill an obligation to the obligee, is responsible for paying the surety bond.
The surety, or issuer of the surety bond, guarantees that the principal meets this obligation by charging the principal a premium and having them sign an indemnity agreement to promise company and personal assets to reimburse the surety in the event of a claim.
How Long Does A Surety Bond Last?
A surety bond lasts for as long as the obligee says it has to last. Some bonds are renewed annually, while others cannot be renewed. No surety bond lasts forever, but a surety bond may last indefinitely as long as premiums are paid.
Do I Need A Surety Bond?
You may need a surety bond for government contracting work. For example, a construction company working under a government contract may need one, or a car dealership or liquor supplier may need one to comply with permit and licensing laws.
Some lenders outside of the government may also require surety bonds before they provide financing, especially in the construction industry.
Get Help Finding What You Need
There are many types of surety bonds available, and it can be confusing navigating your options, especially if you’re new to qualify for one. Our team takes time to get to know the nature of your business and then helps you start the process. Talk to us to learn more.