Professionally, not producing a promised product or completing a project could get you in a lot of trouble.
Protect your reputation and company name by purchasing a surety business bond from an independent agent. This article is an excerpt from Trusted Choice. The full article may be viewed here: https://www.trustedchoice.com/business-insurance/coverage-types/surety-bonds/
Who Needs Surety Bonds?
- Automotive dealers
- Construction companies
- Independent contractors
- Collection agencies
- Health clubs
- Auctioneers
- Medical equipment providers
- Travel agencies
- Notaries
What Is a Surety Bond?
Many people think of surety bonds as "surety insurance." But they are not actually a form of insurance. Think of a surety bond as a line of credit.
If you can’t complete a project, the project owner can then tap into that line of credit to finish the project as necessary. Surety business bonds are a three-party agreement. The three parties involved include:
- The surety company supplying the bond
- The obligee, who is the project owner
- The principal, which is the contractor, organization or employer providing the work
Before the contractor can begin the job, the project owner may require a surety business bond from a surety company. Some projects will require a surety bond and others may not.
Types of Surety Business Bonds
Although surety bonds are common in the construction/contracting field, there are many types of bonds that serve many different purposes.
- License and permit bonds: The obligee, which is often a government agency, requires a bond from the principal. The bond states that all codes and regulations will be followed. For example, a plumber may be required to obtain a license before beginning work. To get a plumber license, you must first secure a license bond, agreeing to adhere to city plumbing code.
- Public official bond: This bond states that elected or appointed officials will perform the duties they are given. Typical bonded positions include notaries, judges, and treasurers.
- Probate and other court bonds: If you’re given a certain responsibility as a fiduciary or trustee, a probate bond guarantees you perform honestly and faithfully. Other court bonds include:
- Administrator
- Executor
- Conservator
- Injunction
- Release of lien
- Miscellaneous bonds: These are complicated bonds requiring an experienced underwriter, since most involve large risk obligations. These include several types of bonds, including:
- Utility payment guarantees
- Union wage and welfare
- Contract performance bond: This bond guarantees that you will follow all terms and conditions set forth by the contract. Many require advance notice. Types of contract performance bonds include:
- Bid bonds
- Performance bonds
- Payment bonds
Benefits of Surety Bonds
If you aren’t required to purchase a surety business bond, why would you? There are multiple ways surety bonds can benefit both parties. As the principal, obtaining a surety bond prior to working with a new project owner displays business integrity and financial stability.
To get a surety bond, principals must apply and meet certain standards set by a surety company. Being rewarded with a surety bond from a top quality surety company is a testament to your business strength.
For a project owner, surety bonds can be a lifesaver. Even if a terrible tragedy prevents a principal from fulfilling a contract, the project must still be completed. Working with a principal that possesses a surety bond can provide peace of mind that, no matter what, your job will get done.
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