A surety bond is basically a legally binding contract. It ensures that the principal, obligee, and surety (insurance company) fulfills its obligations based on the agreement. Most often, the obligee is a company affiliated to the government to ensure maximum welfare for its people. The contractor has the permission to access professional advice and he is offered protection in case there is a dispute occurring with the obligee. More revenues and contracts can be generated due to greater leverage. The lowest bidder is guaranteed to work for the specified price. Losses are settled by the bonding company in case of overruns.
Types of Surety Bonds
1. Contract Surety Bond
The principal is charged 1-15% bond premium of the bonded amount. Your credit score, financial statements, liquid assets and working capital are thoroughly checked. Higher business credit lines and greater industrial experience increasingly add up to the impression. This type includes:
- Bid Bonds
- Performance Bond
- Payment Bonds
- Maintenance Bond
2. Commercial Surety Bond
It is issued by the state, the local or federal government to fulfill the aspirations and interests of the public. It is usually availed by Lottery businesses, notary publics, auto dealers and liquor distributors. You need to renew the term annually. It is dependent on the number of locations and employees, projects undertaken, annual sales transactions and bonded license to be provided. This type includes:
- Permit & License Bond
- Mortgage Broker Bond
- Utility, Warehouse or Auctioneer Bond
- Fuel tax, ARC or AG dealer bonds
3. Fidelity Surety Bond
Employee theft, malpractice and protection of valuable assets are managed by these bonds. It is a policy that starts with only 1% premium and guarantees ample protection for any dishonesty on the opposite side. Businesses which hire seasonally, or handle cash transactions can benefit from this. It covers directors, partners, trustees, employees, and members of the business. This type includes:
- Business Services Bond
- Employee Dishonesty Bond
- ERISA Bond
4. Court Surety Bond
In case of potential losses at the time of judicial proceedings, one can avail of this bond. It can be availed by estate administrators or judicial figures. However, commonly we see the following types:
- Defendant bonds
- Plaintiff bonds
- Attachment & Guardianship Bonds
- Cost Bonds
The inclusion of surety bonds in one’s company enhances its reputation as it is a guarantee for completion of projects. Technical and financial operations can procure working capital for better business growth. Also, the company is expected to pay only for the bond limits utilized.
