If you’re in business, you know that there are many things to keep track of. One thing that might not be on your radar, but should be, is surety bonds. What are they, and how can they help your business? In this post, there will be answers to all those questions and more. Keep reading to learn everything you need to know about surety bonds.
What is a Surety Bond?
A surety bond is a three-party agreement between your business, a surety company, and a project owner or obligee. The obligee is the entity requiring your business to get the bond (more on that later). The surety underwrites the bond, vouching for your business’s project completion. Your business is the principal or the party getting bonded.
If you default on the project—that is, if you don’t complete it as specified in the contract—the obligee can file a claim against the bond. The surety company will then investigate the claim. If it finds that the claim is valid, it will pay out damages to the obligee, up to the bond’s total value. Your business is responsible for reimbursing the surety company for any claims paid out.
The cost of a surety bond is typically a small percentage of the total value of the bond. The exact cost will vary depending on your business’s financial strength, the bond amount, and the project’s length.
You can get a surety bond through a surety company or an insurance company that offers surety bonding services. You’ll need to fill out an application and provide financial information about your business and the project you’re looking to get bonded for. If you need a surety bond by Swiftbonds.com, take note of the whole procedure. Following the proper steps, it makes your approval almost certain. It’s also good to have the correct documents.
Types of Surety Bonds
There are many types of surety bonds, each with a specific purpose. Some common types of bonds include:
Contract Surety Bonds
Contracts are becoming more common in the modern world of business. For example, if you’re in the construction industry, you might enter into a contract with a home builder. The contract will specify the work you need to do, the materials you need to use, and the timeline for completing
If you don’t complete the job as specified in the contract, the builder can file a claim against your bond. The surety company will then investigate the claim and pay out damages to the builder if it finds it valid. The primary contract surety bonds are bid, performance, and payment bonds. A bid bond is a type of surety bond often required when bidding on a project.
The bond protects the project owner from loss if you, the bidder, back out of a job after being awarded the contract. On the other hand, a performance bond protects the project owner from financial loss if you, the contractor, don’t complete the job as specified in the contract. The payment bond protects subcontractors and suppliers from non-payment by the contractor. If you’re working on a construction project, you might be required to have all three types of bonds.
Commercial Surety Bonds
Regulation of markets is a top priority in the modern world. To that end, many businesses must have commercial surety bonds to operate. The purpose of these bonds is to protect the public from any losses from the business’s wrongdoing. There are many commercial surety bonds, each with a specific purpose.
Some common types of commercial surety bonds include:
- License and permit bonds are required by businesses that need a license or permit to operate. These bonds protect the public from losses from the business’s failure to comply with legal requirements.
- Fidelity bonds protect businesses from losses caused by employee dishonesty.
- Court bonds are required by businesses that need to post a bond to participate in legal proceedings.
- Financial guarantee bonds are used to guarantee the performance of a financial obligation.
- Public officials require official public bonds to ensure honest and faithful service.
Court Surety Bonds
If you’re involved in a legal proceeding, you might be required to post a court surety bond. Court bonds are required by businesses and individuals that need to post a bond to participate in legal proceedings. The purpose of these bonds is to protect the other party from losses from the business’s or individual’s wrongdoing.
The two main types of court surety bonds are appeal bonds and litigation bonds. Appeal bonds are required when you’re appealing a court decision. The bond protects the other party from losses incurred due to the appeal.
On the other hand, litigation bonds are required when you’re involved in a legal proceeding that could result in a financial loss for the other party. The bond protects the other party from losses incurred due to the litigation.
Surety bonds are a type of insurance often required by businesses and individuals. The purpose of these bonds is to protect the other party from losses from the business’s or individual’s wrongdoing.