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Learn more about Surety Bonds

What is a surety bond?

A surety bond is a three-sided contractual agreement guaranteeing that a business or individual will fulfill their obligations under a contract and in accordance with business regulations. The three parties involved in the surety bond agreement are the obligee (the party requesting a surety bond), the principal (the party obtaining the bond), and the surety (the surety company backing the surety bond financially).

How do Surety Bonds Work?

To get bonded, you need to pay only a small percentage of the bond amount, which is called a bond premium. This percentage is different for every applicant and it is based on different factors, such as the type of bond you need, your credit score, financial statements, and more.

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Other types of Surety Bonds

What are performance bonds?

Performance bonds are a type of surety bond that guarantees the performance of a particular contract. Often issued in conjunction with a payment bond, these bonds guarantee the completion of a project and payment of all subcontractors and suppliers.

If a contractor is required to post a performance and payment bond on a project and then fails to complete the project, the surety will hire a replacement contractor to complete the project and pay all unpaid subcontractors and suppliers at no additional cost to the owner.  Like the above example, if the surety company pays a claim, it will seek restitution from the contractor for its loss.

What is a bid bond?

Like most surety bonds, most people have never even heard of a bid bond until they are asked to provide one. Bid bonds are most often used in the bidding process for public works projects. The bond guarantees that the low bidder will enter into a contract and provide the required performance and payment bonds. If the low bidder cannot enter into the contract, the bid bond would cover the difference in cost between the low bidder and the 2nd bidder.