What is a Surety Bond?

A Surety Bond is a written promise made by one party to back up the promise of another. This is a three-party agreement between a principal, an obligee and a surety. The principal promises the obligee to do a certain thing, and the surety guarantees that it will be answerable if the principal defaults on the promise. The bond protects the obligee who requires the principal to post the bond.

Who is a Surety?

A surety is a qualified insurance company that issues the bond. Bonds are a form of financial security to be paid out by the surety to the obligee in case of a breach of terms by the principal. A surety is rated by AM Best and often Treasury Listed with the federal government and preapproved to issue bonds up to certain limits based on financial strength.

Why am I required to purchase a surety bond?

A surety bond may be required before someone will allow you to finalize a contract or begin a job. You may be legally required to purchase a surety bond depending on your job type or where you work. Bonds are often required before businesses can be licensed or may be required by government entities to ensure protection of consumer interests. Bonding regulations are established by state and municipal entities, so be sure to research regulations for your industry.

How will my credit score affect my surety bond cost?

Because surety bonds are a financial safeguard, you will need to be reviewed and approved before a surety company will agree to bond you. This application may include an overview of your work history, credit score and other financial records to determine your reliability. While a poor credit score doesn’t automatically disqualify you from a surety bond, some companies may cover you as “high risk” and charge a higher rate.