How Do Bonds Work?
At NFP Surety, we are glad to answer the question regarding, how does a bond work? That’s what this post is about, gauging from the title. We can write all types of surety bonds, Nationwide. Contact us with any questions you may have. NFPsurety.com!
Brief Explanation of a Surety Bond
In general, a bond means that you are loaning your money to a specific party, usually a company, the city, or the government, with the agreement that they will pay you back over time with regular interest payments. This means you go a period of time without a certain amount of money (the money you lent), but you eventually end up with more money than you lent out to start. This is the general sense of a bond, but the goal of this article is to help you better understand a particular type is known as a surety bond. We’ll discuss what a surety is, but also answer the all-important question: How do bonds work? Let us teach you how to get bonded today!
What is a Surety Bond?
So what exactly is a bond? This type is a legal contract that calls for certain obligations to be fulfilled between whoever needs to fulfill those obligations, the person who needs those obligations fulfilled and a type of company providing insurance that the contract will be fulfilled. The first party, the principal party, is the person who seeks the bond initially. The second party, the obligee, is the person who requires the bond. Finally, the insurance company is called the surety, hence the name “surety bond.”
US Small Business Administration
In the most general sense, to answer anyone wondering “How do bonds work,” a surety bond can be explained as insurance that you are paying for to guarantee that you will complete a set of requirements set by the person requiring you to obtain the bond. These are typically required by government agencies, and you are usually the one to pay for them. The insurance company comes in if you are for some reason unable to fulfill the agreement, which therefore protects the government agency from losing any money on an unfulfilled agreement.
A surety bond works by requiring you to abide by the terms set in the agreement. If you don’t you’re expected to pay for every bit of whatever subsequent claims can occur (and occur they most certainly will.) The surety is in place to protect the obligee from losing any money, but you’ll still be expected to reimburse the obligee for any money they may lose as well. The surety is simply there to reassure the obligee that you’ll be able to fulfill your agreements, however the surety most often also requires what is called an indemnity agreement, which is a sort of contract between you and the surety saying that you will be able to pay them back as well should the need arise.
In short, a sureties can be seen as a form of credit that you are receiving without putting so much on the line like you might have to receive that backing from other institutions like banks or credit unions, where a whole lot more is required to reassure them that you will be able to pay them back than is required to reassure a surety company.
When first pursuing a bond, it is so crucially important that you read, read, and reread any documents that you may end up signing. Obviously, this will hopefully result in you having the most thorough understanding possible of any agreement you might be signing your name to. If you casually sign your name to a surety agreement, you might end up realizing later that you’ve agreed to something that you simply cannot stand by. This will ultimately put your personal or corporate assets at risk, which is obviously something that simply must be avoided at all costs. Call NFP Surety today at 800-863-3210, and we’ll make sure you are properly bonded. We will teach you, how surety bonds work? Better yet, fill out the quick and easy application here! Online Application.
There are other requirements that you must make sure are met when it comes to protecting these assets. First, you must determine whether you can trust the surety company you have found. NFP Surety only works with top-rated bonding companies! This trust can be built with the level of transparency they appear to have with you. When having any and all types of discussions with them, if you don’t understand something, ask them to explain it to you again. If your agency’s answer the question “How bonding works in this case?” in a way that you understand, you shouldn’t agree to anything for many reasons, one of those reasons being that they probably won’t be able to explain it to your obligee either. If your surety does not convince your obligee, you will probably be back to square one anyway. You would not sign up for a credit card without first completely understanding any and all stipulations that might be placed on its usage, and this instance is the same. NASBP
Of course, understanding what your bond is guaranteeing is contingent on the agreement between you and your obligee, which could be nearly anything imaginable.
When engaging in getting bonded, be cognizant of the fact that only certain types are applicable to businesses or that will protect your company from financial loss in the event of a claim being made. An example of this type is a Fidelity Bond. When discussing options with your surety, make sure to talk about the possibility of protecting your company, as well as yourself. It would be detrimental to engage in a bonding that did not cover your company when it needed to. This is another instance in which case it’s important to flat out say, “How do bonds work if I need it to cover x, y, and z?” Never be afraid to have these frank discussions with your surety provider. SFAA
Call us at (800) 863-3210 for your free bonding quote!