Surety Bonds

What are Surety Bonds?

A surety bond is a written agreement to be liable for the debt or default of another.

It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).

If the principal fails to perform in the appropriate manner, the bond will cover the resulting damages or losses.

The principal is the party that purchases the bond and takes on the obligation to perform an act as promised.

The surety is the insurance or bonding company that guarantees the obligation will be performed.

The obligee is the party that requires a surety bond. Often, the obligee is a local, state, or federal government agency. It can also be a business or non-profit organization.

There are two broad categories of surety bonds called contract surety bonds and commercial or miscellaneous surety bonds.

Contract bonds ensure the terms of a specific contract are fulfilled. Commercial bonds ensure all applicable laws and regulations are followed.

Benefits of Surety Bonds

Surety bonds can help a small business win contracts by providing the customer with a guarantee that the work will be completed. Many public and private contracts require surety bonds.

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