Surety bonds are designed to ensure that principals act in accordance with certain laws. They provide the obligee with financial services and guarantee that contracts and other business deals will be completed in accordance with mutual terms. If the principal breaks those terms, the harmed obligee can make a claim on the surety bond to recover losses incurred. The surety company then has the right to be reimbursed by the principal in the case of a paid loss or claim.
Two of the most common forms of surety bonds are contract surety and commercial surety. A helpful explanation by the Surety Bond Services describes the two as the following:
Contract Surety Bonds provide financial security and construction assurance on building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and pay certain subcontractors, laborers, and material suppliers. The obligee is protected against a contractor’s inability to complete a job.
Commercial Surety Bonds guarantee performance by the principal of the obligation or undertaking described in the bond.
Required by federal, state, or local governments as a condition for obtaining different types of licenses and permit surety bonds to engage in a specified activity, this bond guarantees that the party seeking the license or permit (obligor) will comply with applicable laws or regulations.
Required of a plaintiff or defendant in judicial proceedings to reserve the rights of the opposing litigant or other interested parties. Court bonds include appeal bonds, probate bonds, attachment bonds, and injunction bonds.
Required of those who administer a trust under court supervision. Typical such bonds are executor and administrator bonds, trustee bonds, guardian bonds, and conservator bonds.
Required by statute for certain holders of public office, to protect the public from malfeasance by an official or from an official’s failure to faithfully perform duties. Government bonds included county clerk bonds, tax bonds, notary bonds, and treasurer bonds.
These bonds are generally described as any private or public bond not readily classified under the other bond types. These bonds are vast in their scope and are often broad coverages whose risk factors and obligations are only defined and ascertained within the underlying obligation being bonded. Quite often, the real obligation being bonded is the compliance to the underlying agreement and in the event of failure to comply, the payment of money to compensate for recouping of losses, or as a penalty for default.
Before principals can obtain a contract bond, he or she undergoes an extensive prequalification process called underwriting to enable the surety to capture a clear picture of the company.
A surety bond services provider must be satisfied that the contractor runs a well-managed, profitable business, keeps promises, deals fairly, and performs obligations in a timely manner.
Underwriters use Financial Statements and business plans, among other factors, to help determine a contractor’s surety capacity. Other criteria include:
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Our miscellaneous bonds provide versatile surety bond services for business needs outside other categories, including auto dealer bonds, freight broker bonds, and tax bonds, offering commercial bonds and business bond insurance that protect industries from risks of non-compliance.
(also called judicial bonds)
Our court bond solutions provide surety bond services for legal proceedings, offering appeal bonds and guardianship bonds that reduce risks for clients requiring fiduciary and probate bonds to meet court-mandated financial securities during estate, guardianship and appeal surety bond services.
Our commercial bonds deliver surety bonds and bonding services to meet businesses’ financial risk management needs, helping clients meet licensing requirements through bonds that protect various industries from risks of non-compliance and non-performance.
Through contract bonds, we provide bonding services that offer risk management solutions, guaranteeing payment and performance on construction contracts to clients in various industries and all government-level seeking bonds. The contract owner can claim against the bond to recover financial losses.
