You may have heard the term surety bond and wondered what they are. In this article, we will give you all the needed information on surety bonds and the benefits of surety bonds.
What Are Surety Bonds?
Essentially, surety bonds are a form of insurance another, paid for by you. The party requiring the insurance is referred to as the obligee, and they are the person requiring the insurance policy.
In most cases, the obligee is a government agency; the bond is designed to protect the government and its citizens. You are referred to as the principal, and the government requires the principal to pay for the surety bonds.
How Do Surety Bonds Work?
Chances are, none of this is making sense just yet. To fully understand surety bonds, you have to understand how they work.
If you are required to get a surety bond, you have to abide by the terms. When you fail to abide by the terms, this is referred to as surety bonds claims. You have to pay everything, including legal costs, for surety bond claims.
The bond is backed by the surety. In order to have a surety bond, you will be required to sign a general agreement of indemnity. With this agreement, you agree to reimburse the surety for any claims and legal costs that may come from you not abiding by the terms.
When Will You Need a Surety Bond?
Unless you are told you need a surety bond, you aren’t going to encounter them too frequently. Here are a few situations in which surety bonds are more common.
- Contractors need a surety bond for construction projects.
- Industries may require a surety bond before you can legally start your own business.
- If you are in a court proceeding, you may be required to obtain a Court Bond; this is a type of surety bond.
- Fidelity bonds are a type of surety bond, and they are designed to protect your business from theft, fraud, and embezzlement from employees.
How to Get a Surety Bond
Once you are sure that you need a surety bond, you have to find out which bond you need. There are a large variety of bonds available in the United States. If you purchase the wrong one, the obligee is going to reject the bond.
There are a few different categories of surety bonds such as:
- Contractor Bonds are required for any job over $100,000.
- Court Bonds can be required by a court during proceedings.
- Fidelity Bonds are optional and never required by anyone. They are used as form of insurance for your business.
- License Bond/ Misc. Bonds are for situations without a specific contract. This may be used when you get a license or permit.
Once you know what category of bond that is needed, you need to find a company to help you obtain the bond. There are many specialist companies, such as Viking Bond Service, that employ specialists who can help you through the process. Most of these companies offer a variety of surety bonds.
Benefits of a Surety Bond
- Surety bonds help increase your company’s credibility.
- They give you protection in the event of unwarranted claims.
- If you are beginning a company, a surety bond allows you to utilize a full operating line of credit given to you by your financial institution.
- Bonding helps keep your activities confidential.
- Because a surety bond binds you to the surety company, you will have access to a line of professionals such as lawyers, estimators, and accountants.
Luckily, there aren’t many circumstances that require the use of surety bonds. If you encounter a situation in which you need one, find a reliable surety company to guide you through the process.