person signing a contract with two witnesses

When Would I Need a Surety Bond?

Are you about to make a transaction that requires a surety bond? Are you unclear on what it is and are you looking for more information? Well, you can find out more right here regarding what a surety bond is, who might need it, and why.

What Is a Surety Bond?

A surety bond is a credit used in many projects to protect a business or individual from deals that would not always turn out in their favor. For example, if you take someone up on an offer and put your own assets on the line for it, you want to make sure they’re going to go through with that offer. If the payee can no longer go through with the offer, then the third party will assume their debt to make sure you don’t lose out on payment. Things don’t always go as planned, and a surety bond can protect you from these mistakes.

How Do Surety Bonds Work?

When creating a surety bond, there must be three parties. First, there’s the principal. The principal is the individual or organization looking to make a payment or promise to an obligee as part of a transaction. Second, you have the obligee, the individual or organization who is being promised payments and services. Finally, you have the surety, a third party who serves as a means of insurance for the obligee.

If the principal can no longer go through with the deal or has to back out, the surety will front the costs and complete the deal with their resources.

Who Would Need a Surety Bond?

Surety bonds can be used for any kind of transaction, but they are typically used in the construction industry for a variety of reasons. Smaller businesses can use surety bonds as a means of competition, as it ensures that the customer is going to get what was promised from the agreement.

Of course, the surety will not finish just any job themselves for the customer, but they would likely either compensate the customer for the rest of the job that needs doing or hire another contractor to finish it for them.

As a small business owner, it can be a great way to build trust with the customer, as you’re showing them you’re confident in your abilities to finish the job. It’s a confident suggestion from you, as well as secure protection for the customer.

These bonds are also commonly used in the commercial sector, typically in business-to-business scenarios. If you’re signing a contract with another business to fulfill an order, you may want to make sure there is a surety bond involved in the agreement if you’re going to be relying on their services. You don’t want your business to be left without what was agreed, and the surety bond will protect you from any kinds of malpractice.

Types of Surety Bonds

If you’re going to get a surety bond to conduct business, you should know that there are multiple kinds of bond for you to use.

Commercial Surety Bond

Larger government entities or business-to-business transactions typically use a commercial surety bond. These bonds are used to protect public interests and to make sure that businesses are going to adhere to agreements and regulations made on transactions.

Contract Surety Bond

As mentioned before, the use of surety bonds, particularly contract surety bonds, is used in the construction industry. A contract surety bond is used to make sure that the principal completely fulfills their agreed duties without fail, and if they can no longer go on, the surety will get another contractor.

It’s not just about the completion of the work, but the standard and quality that was agreed upon.

Court Surety Bond

During larger court cases, people and businesses may lose money because of various reasons connected to the case. Count surety bonds are a way of protecting those involved from losing money during the court proceeding. These surety bonds are sometimes required by law.

Can Anyone Get a Surety Bond?

If you’re going to use surety bonds to conduct business, then you need to prove to the surety that you’re going to pay up or fulfill the agreement. Typically, you wouldn’t be approved for a surety bond unless you have good credit and your business has an excellent reputation. You can’t use it to guarantee business and drop out when it suits you, for example. The granter of the surety bond will want to be confident in your ability to fulfill the agreement before granting your bond.

Do Surety Bonds Expire?

Surety bonds are more than just temporary protection for a client. They’re valid until the service is fully complete, or the agreed upon money is paid. The agreements can be changed within the surety bond to extend the times of agreement, but overall, the surety bond will remain valid until the agreement is fulfilled.

Looking for a Surety Bond?

A surety bond is a great way to ensure you or your business gets what it has agreed on with other clients. It’s also a great way to inspire confidence in your customers by legally binding yourself to an agreement that protects the customer no matter your abilities to fulfill the agreement.

If you’re looking to set up a surety bond, get an instant bond quote from John B. Wright Insurance.