How Do Surety Bonds Work?
To put it simply, surety bonds guarantee that specific tasks are fulfilled. This is achieved by bringing three parties together in a mutual, legally binding contract. The principal is the individual or business that purchases the bond to guarantee future work performance. The obligee is the entity that requires the bond. Obligees are typically government agencies working to regulate industries and reduce the likelihood of financial loss.The surety is the insurance company that backs the bond. The surety provides a line of credit in case the principal fails to fulfill the task. The obligee can make a claim to recover losses if the principal does fail to fulfill the task. If the claim is valid, the insurance company will pay reparation that cannot exceed the bond amount. The underwriters will then expect the principal to reimburse them for any claims paid.
What Are the Benefits of Being Bonded?
Being bonded gives issuers the ability to leverage business growth. With the increased stature of having the insurer’s credit rating, a business can feel safer in taking risks to improve and grow the business. This is especially true in the construction and financial industries.
A bonded business can obtain unbiased criticism from a credit professional and seek advice in underwriting projects.
Some bonds we handle include, but are not limited to, the following:
- Contract performance bonds
- Bid bonds
- Maintenance bonds
- Payment bonds
- Supply bonds
- License and permit bonds
- Miscellaneous bonds