What is Surety Bond?
There has historically been a considerable amount of confusion about the question, “What is a surety bond?”, and what they’re all about, although some businessmen and the actual parties to a surety bond are much better informed. They are worth understanding though, because sureties serve a very useful purpose in the business world, and act as a kind of guarantee of professionalism when employed. Chubb Surety does a phenominal job discussing surety bonds.
What is a Security Bond? In essence, the bond is a mechanism for the transfer of risk to another business entity, taking the form of a legally binding contract between three parties:
- the financing company – known as the ‘surety’, this party provides financial backing which would be claimed by the obligee party in the event that terms of the agreement are not lived up to by the principal. Obligor in other words.
- the principal – the party which requires the bond is known as the principal, who purchases the bond as a guarantee of future work performance
- the obligee – the entity requiring the bond, often an agency of the government, seeking to lessen its risk of financial loss.
NFP Surety has been the industry leader in surety solutions since 1984! We can write all bond types, in all states! We have partnered with dozens of surety companies such as Travelers, Hartford, Philedelphia, HCC, Zurich, Chubb, SureTec, Nationwide, and more. Contact us today on our main website, call us at (800) 863-3210, or fill out our online application. It only takes a few minutes to get properly bonded.
Types of Surety Bonds
There are different types of surety bonds, each of which has a distinct business function:
- contractor bond – when a bond is associated with a specific contract, this is the kind of bond which would be purchased. The Miller Act applies to all government jobs valued at $100,000 or more, and requires government contractors to post bonds guaranteeing job performance as well as payments to sub-contractors.
- license bond – this kind of bond is not related to a specific contract, but is still a bond which may be required of you, often for the purpose of obtaining a permit or license to operate within a particular area of interest, such as a state or municipal region.
- court bond – a bond which the court system requires, and is imposed upon one of the parties in a legal case.
- fidelity bond – this kind of bond protects your company against poor performance, employee theft, or other damage, and is not actually required by any party, but serves as insurance.
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How Does a Surety Bond Work
A surety bond works as a kind of insurance to the obligee that the conditions of a contract will be met, and if those conditions are not met, the obligee would then have the option of claiming the monetary value of the bond, as provided by the surety company. If a claim is made, then the principal would be responsible for re-paying the surety. Presumably the surety company would already have assessed the principal’s ability to repay, and has confidence in that ability.
If you or your company are obliged to purchase a surety bond, the expectation is that you will fulfill the terms of the agreement completely, and if you don’t, a claim is likely to be made – which you will have to pay in full, on top of any legal expenses which may be incurred, if a court case is involved.
Surety Bond Meaning
In answer to the question, “What does a surety bond mean?”, you could say that a sureties are a combination of insurance and credit. For the obligee, it acts as insurance because this party can file a claim for reimbursement if the terms of the agreement are not met. For the principal, it works as something like credit, and any claim must be repaid by this party to the surety. The obligee can file a claim as reimbursement for any losses sustained as a result of the principal failing to live up to obligations, and the surety company is obliged to pay all valid claims, as long as they are less than or equal to the bond amount. Nationwide bonding is knowledgeable about surety bonds.
How To Get A Surety Bond
The first step in obtaining a bond is to determine exactly which kind of bond you need, and although this sounds trivial, it can be critical. If you purchase the wrong kind of bond for a specific situation, it will not be honored by a surety company, and you would have lost all hope of being compensated for any losses. this is where NFP Surety can help! Contact us, or simply fill out our easy online application, and get bonded in no time!
It’s fairly easy to apply for a bond these days, since the basics can all be done online. Anything that you don’t fill out properly, or which is not clearly understood, can be resolved when a bonding agent calls you. For instance, contract bonds often require additional information, which you can supply during that telephone conversation.
In most cases, the party requesting the bond will be required to sign an indemnity agreement, which contains the specific terms to be fulfilled by the surety in the event of a claim. This document would then need to be signed and notarized, then returned to the surety. At this time, the principal would then be required to pay the cost of bond issuance, using a credit card or other form of payment. Once payment has been finalized, the actual bond would then be issued, and would be in effect from that moment on.
Let us do all the hard work for you! NFP Surety is able to cover all bond types, nationwide! Whatever your needs, our experienced surety bond professionals, will help you get bonded! Reach out to us today, and learn how to get a surety bond.