A surety bond is a special contract that ensures one party fulfills its obligations to another. It protects against financial loss, legal issues, and regulatory penalties. Businesses and individuals, such as contractors and business owners, often need surety bonds to meet legal or contractual requirements.

What is a Surety Bond?

A surety bond is a contract involving three parties:

1. Obligee – The entity requiring the bond (often a government agency or business).
2. Principal – The person or business obtaining the bond to guarantee performance.
3. Surety – The company providing the bond and ensuring that obligations are met.

If the principal fails to fulfill their duty, the obligee can make a claim, and the surety may pay for damages. However, the principal is obligated to reimburse the surety for any claims settled.

Types of Surety Bonds

There are four main types of surety bonds:

1. Contract Bonds – Used mainly in construction projects to ensure work is completed properly.
   1. Bid Bonds: Ensure the contractor accepts a bid and follows through.
   1. Performance Bonds: Guarantee the contractor completes the work as agreed.
   1. Payment Bonds: Ensure workers and suppliers are paid.
2. Commercial Bonds – Required by businesses to comply with laws and regulations.
   1. License and Permit Bonds: Needed to obtain business licenses.
   1. Public Official Bonds: Ensure officials perform duties ethically.
   1. Tax Bonds: Guarantee tax payments.
3. Fidelity Bonds – Protect businesses from employee dishonesty or fraud.
   1. ERISA Bonds: Protect retirement plans from fraud.
   1. Business Service Bonds: Cover customer property in service-based businesses.
   1. Employee Dishonesty Bonds: Cover theft or fraud by employees.
4. Court Bonds – Required for legal proceedings.
   1. Appeal Bonds: Cover court costs if an appeal fails.
   1. Probate Bonds: Ensure estate managers handle funds properly.
   1. Guardianship Bonds: Protect minors or incapacitated individuals.

Who Needs a Surety Bond?

Many professionals and businesses need surety bonds, including:

• Contractors
• Auto dealers
• Plumbers and electricians
• Notary publics
• Businesses handling customer funds

How Surety Bonds Work

1. The obligee requires a surety bond.
2. The principal applies for a bond from a surety company.
3. The surety evaluates the principal’s financial stability.
4. If approved, the surety issues the bond.
5. If the principal fails their duty, the obligee files a claim.
6. The surety pays the obligee and then collects repayment from the principal.

Benefits of Surety Bonds

• Credibility: Shows reliability to clients and regulators.
• Financial Security: Protects obligees from loss.
• Legal Compliance: Ensures businesses follow regulations.

Surety Bond vs. Insurance

While insurance protects policyholders from financial loss, a surety bond protects the obligee. Unlike insurance, if a surety bond claim is paid, the principal must repay the surety. Go to site to learn more about the differences between insurance and surety bonds.

How to Get a Surety Bond

Surety bonds can be purchased online from bond companies. The cost varies based on bond type and the applicant’s financial background. Some common costs include:

• Title Bonds: From $100
• Motor Vehicle Dealer Bonds: From $225
• Notary Bonds: $50 for four years

Choosing a Reliable Surety Bond Provider

To find a good bond provider:

• Research reputation and experience
• Read online reviews
• Check licensing and financial stability
• Ensure they offer the required bond type