Surety bonds are legally binding contracts that ensure obligations will be met between three parties:
- The principal: whoever needs the bond
- The obligee: the one requiring the bond
- The surety: the insurance company guaranteeing the principal can fulfill the obligation
Surety bonds provide financial guarantees that contracts and other business deals will be completed according to mutual terms. Surety bonds protect consumers and government entities from fraud and malpractice. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses. A surety bond is not an insurance policy.
Surety bonds help small businesses win contracts by providing the customer with a guarantee that the work will be completed. Many public and private contracts require surety bonds.
There are several types of surety bonds including, bid bonds, payment bonds, performance bonds and maintenance bonds.
What should I look for in a Surety Bond?
There are many types of bonds. Talk with an expert agent to make sure you get the right type of bond to meet your contractual obligations.