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Different Types of Bonds

Different Types of Bonds

Different Kinds of Bonds

During any business transaction, trust is a critical factor that one can’t do without. So how do you get assurance from a party that you have never dealt with before? Enter SURETY BONDS. A bond is a contract that provides a guarantee that a particular obligation will be met according to the agreed terms and conditions. Failure to do so, results in significant financial consequences by the holder of the bond.  We will briefly discuss what are the different types of bonds, and how they work!

How Do Sureties Work?

There are different bond types in the market today, but one common feature that they all have is that they provide a guarantee on a specified obligation. They are meant to provide tangible proof of a promise that you will deliver on what you have said you will do as a business.

At NFP Surety, we have been the leader in ALL TYPES of Surety Bonds since 1984!  We bond Nationwide, with highly rated companies.  Call us today at (800) 863-3210 or simply fill out the application.  It’ll only take a few minutes, and we will help you through the process!

Once you take out a bond, depending on what it is intended to cover, you then get to execute on your duties. If you carry them out according to specifications, there is no problem. If you fail to meet the performance indicators, the concerned party files a claim on it. Any amount that is paid to settle any such claim is, in turn, levied on you by the provider of the bond.

Unlike an insurance provider that doesn’t expect repayment on claims paid out, a bond agent expects you to pay. The legal obligation to meet such a claim is what provides surety that you will deliver on what you promise. It is therefore important that you understand the conditions of any bond you acquire to manage the risk best it exposes you to.

Different Types of Surety Bonds

There are too many bonds to list, but we’ll give it a try!

(not even close to all of them)

Different Types of Bonds

Why You Need Sureties?

There are various reasons why a business might require a bond while transacting with other parties. Different kinds of bonds provide guarantees towards various obligations in varied contexts. Some of these reasons include:

Compliance with Licensing Requirements – There are specific industries that stipulate a business must have a surety to qualify for an operating license. The purpose of such bonds is to ensure that you will carry out your business obligations ethically and faithfully. A lack of adherence to the rules governing the area your business operates in can lead to the filing of a complaint and a claim made against your bond.

Facilitating Court proceedings – A court of law can, at times, require you to purchase a surety. The purpose of such a bond is to protect against any potential losses arising from the court proceedings.

To Protect a Business – A business owner might opt for a bond whose sole purpose is to offer protection to the enterprise. Be it to guard against embezzlement, fraud, etc. The different types available in this category prove protection against things that regular insurance policies don’t.

Facilitating Contract Participation – A business might need to get a surety that will enable them to participate in a contractual process. When placing bids, for example, you may be required to get a surety that guarantees you can follow through on the job, should you win the bid. You may need a bond to provide proof that you can be able to pay any vendors you engage in a transaction with.  Another resource – US Treasury

Benefits of Getting Bonded:

Several advantages can make a business consider getting any of the different kinds of bonds in the market. Some of these are:

  1. No Collateral Required-  Most sureties do not require you to provide any collateral to acquire them. You can, therefore, get one to assist you to meet an obligation that adds value to the business while freeing up your assets for other transactional purposes. This can also be a cost-effective way to build credibility for the company quickly.
  2. Reputational Value – When seeking bonding, you must undergo rigorous due diligence by the potential provider. If you successfully pass the inspection, you gain a favorable reputation that you can leverage down the road in other transactions when you need to demonstrate a track record of good conduct.
  3. Financial and Technical Assistance – A surety provider can opt to help you with financial or technical advice to improve your capacity. This significantly improves your chances of carrying out the obligations successfully.

What are the different types of bonds:

There exist different kinds of surety bonds that serve different needs. Every bond comes with its nuances. Some of the bond factors include:

•  Bonds Related to How You Perform

Among the sureties available are those that tie directly to your performance. These bonds provide a guarantee that you will finish a job according to the specifications agreed upon. If you are unable to meet the requirements of the job successfully, the bond provider has two courses of action to take.

  • They can either advertise it to other vendors for completion
  • Complete it themselves.

Unlike an insurance company, they do not only offer monetary compensation in case of failure by a bonded, to meet the requirements. The bonding company will expect you to pay for any claims successfully settled against such a bond.

• Bonds Related to How You Bid

Another variety of the different bond types is one that provides surety against defaulting on a bid. Any party that announces a bid which you tender to can require proof of guarantee that you will follow through should you win.  Such bonds ensure that only competent and serious applicants tender for projects.

• Bonds Related to Warranties

When you provide construction services, the owner will most likely require you to promise that you will cover any maintenance problems that arise for a set period after completion. Such a bond protects against costs resulting from faulty work as contractors pay for any maintenance during the agreed period.

In case you do not cover these expenses or if you are not in business during the agreed period, the owner of the project can file a claim against the bond to recover those expenses. You will then be liable to the bonding company.  USA.gov

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Contact us today.  NFPSurety.com
There are different kinds of sureties that serve various transactions in many industries. While the nature of these bonds may vary, they seek to provide the same objective which is assurance against a set of specified obligations. There are benefits to your business should you aim to acquire a surety bond. Attention to the details on any bond you get is critical to managing the risks that it exposes you to.

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