A Surety Bond is a legally binding agreement that provides a guarantee that a company or individual will deliver on their obligations. Surety Bonds help to ensure a company or person will complete the duties it has promised to carry out. The three parties involved in a surety bond:
The Principal: The party responsible for meeting an obligation. The principal purchases the Surety Bond to provide a guarantee for their work.
The Obligee: The party that requires a Surety Bond to guarantee that the principal will fulfill obligations.
The Surety: The bond company that issues the bond to guarantee that the principal will fulfill their obligations. If the principal doesn’t meet their obligation, the surety will typically pay out a set amount to the Obligee.
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Typically a guarantee of performance, a Surety Bond can help companies secure more business. Government and private contracts will require a Surety Bond in order to participate in the bidding process or upon award of the contract. Securing a Surety Bond may be a basic condition of your company winning a contract.
Many government contracts require a Surety Bond. All federal government contracts over $100,000 require Surety bonds. When a company purchases a Surety Bond, it transfers the risk of failure from the government to the surety company.
Surety bonds offers thousands of different types of surety bonds, so it’s important to ensure that your business has the right one. In most cases, the obligee (the party that requires your business to obtain the surety bond) will lay down the details of the bond you need. This information will include the bond type, bond amount, and any other specific requirements the obligee may impose. Surety bonds include:
Miscellaneous Bonds- Miscellaneous commercial bonds typically come into play through private relationships and support business transactions. Some examples include utility bonds, title bonds, and lost securities bonds.
Sureties will use your credit score to determine how much they’ll charge you for your bond premium. In general, someone with average to good credit (typically defined as a score above 650) will pay 0.5% to 3% of the bond amount, depending on what type of bond it is