A surety bond is a three-party agreement between a principal, an obligee and the surety. If you don’t understand the first sentence, you are not alone, not by a long shot.
Here’s the scoop on surety bonding in plain English. A surety bond is a contract between you (the principal), the person you are doing business with (the obligee) and the surety that sold you the bond you needed. It is not insurance for you or your business. It is protection for whoever you are doing business with. It guarantees that you will follow regulations set by your county, state or federal government. It also guarantees that you will honor your contract with the company you are doing business with.
If you can not comply with government regulations or your contract with a business, the surety that sold you the bond will finish your job and expect you to pay them for the work they did on your behalf. Here’s an example: A contractor buys a construction surety bond for a project but does not complete the job or does not complete to job according to expectations. The surety
who sold you a bond will step in and hire a contractor to finish the work. Then the surety will expect you to pay them whatever it cost to complete your job.
When you are looking for a surety, you want to ask the following questions:
- How long has the company been selling surety bonds
- How much experience do the underwriters have
- How do their prices compare with other sureties
- Do they offer discounts for multiple surety bond purchases How quickly can your bond be approved
- How quickly can your bond be delivered
Any surety that can’t answer these questions the first time you call is probably not a good choice. A surety should be able to approve your bond the same day it receives your application. Sureties that take several days to respond typically are not surety specialists and do not have good resources.
In most instances, your best source for a surety bond is not your insurance agent. You want to contact a business that specializes in selling surety bonds, ideally a company that only sells surety bonds. Generally, they can get you the best rates and give you the best advice. It is especially important for contractors to work with surety bond specialists because the process for getting a contractor surety bond is time consuming and complicated.