While people in many industries are unfamiliar with surety bonds, there are some fields where a surety bond might be standard practice. If you’re new to one of those industries, you must understand the basics of a surety bond to obtain one if necessary.
Surety Bonds: The Basics
You need to understand plenty of essential things about these bonds and what they mean.
What Is a Surety Bond?
A surety bond is a guarantee extended to ensure that the bonded company fulfills its obligations. Unlike insurance, surety bonds serve as a line of credit instead. If your business must pay funds due to a failure to perform, the bonded company must repay it. In the meantime, the surety company carries the risk of the bonded business. It is an essential distinction because insurance claims don’t have to be repaid. It is one of the things that sets a surety bond apart from insurance.
What Is the Purpose of Surety Bonds?
Understanding what a surety bond is will only get you just so far. You also should be familiar with their purpose. The most significant reason is often that it can increase your business. Since a surety bond guarantees your company’s performance, it automatically makes your business the more reliable choice in bidding against a competitor that isn’t bonded. It can set you up for tremendous long-term success and increased revenues.
If you intend to pitch any government contracts or seek any federal jobs, you may be required to have a surety bond. Most government contracts require you to carry a surety bond even to bid the contract. If you’re hoping to position your company for government work, that’s another reason why you need a surety bond.
What Types of Bonds Are There?
Now that you know what a surety bond is and what businesses use it for, you should also understand what types there are.
A contract surety bond can be issued to preserve the terms of the bid, the contractor’s performance, and the contractor’s ability to pay their subcontractors and employees. Sometimes, these bonds guarantee a contractor’s work during the warranty period.
Commercial bonds include license bonds for electricians, plumbers, mortgage brokers, and even real estate professionals. Often, these professionals are required to obtain a surety bond during licensing.
These are some of the most important things to know about surety bonds.
There is a chance that you might need one, so you must be familiar with them before you pursue it. The more you understand from the beginning, the easier it will be for you to secure the bond you need.
About Provident Protection
For more than 65 years, Provident Protection Plus has served the businesses and residents across several states nationwide. Today, we are a wholly-owned subsidiary of Provident Bank, the region’s premier banking institution. To learn more about our coverage options, contact our specialists today at (888) 990-0526.