4 Simple But Important Things To Remember About Surety Bonds

Millennial Magazine- surety bonds

Signing a contract and going into a venture with another party can be risky. If your business partner backs out or doesn’t follow through, you’re left with nothing in return for all your hard work. One way to sidestep this unfortunate end is through the help of surety bonds. Surety bonds are a useful tool for any business, but you need to know how to use them to reap the rewards.

If you’re looking to learn more, you’ve come to the right palace. Here’s everything you need to know. Keep these 4 simple and important things in mind to become a pro at surety bonds!

1.   What is a surety bond?

It’s important to establish what surety bonds are, and what they are not. Contrary to popular belief, surety bonds are not bonds or insurance. They are a promise made by a surety company to pay the first party if the second party doesn’t follow through.

Surety bonds protect the primary party from the shortcomings of the second party. For this to work, a set amount of money needs to be paid to the obligee if a principal falls short, by the surety. Surety bonds primarily help small contractors to get contracts by reassuring customers that they are in good hands.

2.   How to get a surety bond?

Three distinct parties need to be involved to get a surety bond. The principal (the party buying the bond), the obligee (the party that needs a guarantee through the bond), and the surety (the bond issuer). The bond requires the principal to sign an indemnity agreement to get a bond. This allows their company and personal assets to be used as reimbursement if a surety claim is made.

To get a surety bond, the principal needs to pay a premium to a surety company. If you need a surety bond, those from suggest working with a surety company that has the expertise to get you the right deal. By working with the right company, you and make sure to keep your business safe and protected.

3.   Types of surety bonds

It’s important to know that surety bonds don’t all come in a one size fits all package. Here are some of the main types to be mindful of.


The government usually asks for these bonds to protect the public interest. They are typically used by licensed businesses to make sure they keep to all the rules, laws, and regulations, to keep the public safe. Typical principles include automobile dealers, liquor stores, notaries, and licensed professionals and contractors. License permit bonds and mortgage broker bonds are examples of commercial surety bonds.


Contract bonds are the most common kind of surety bond and are used to guarantee the performance of a contractor. With this bond, if a contractor falls through, the surety company needs to secure another or reimburse the project owner. Common contract surety bonds include bid, performance, payment, and maintenance bonds. Surety companies will look at a contractor’s cash flow, character, and credit and work history for this bond.


Companies can use fidelity surety bonds to protect themselves from dishonest employees and theft. These bonds are especially important for companies that deal with expensive products or large amounts of cash. Fidelity surety bonds cover the business as well as their employees, directors, trustees, and partners. Business service, employee dishonesty, and ERISA bonds all fall under this category.


Court surety bonds are the last type on the list, and they protect individuals and businesses during court cases. They are often used by defendants and plaintiffs, as well as by state administrators. Cost, administrator, guardianship, and attachment bonds are all examples of court bonds.

4.   How to choose a bond

The many types of surety bonds all share the same characteristics. These characteristics include bonding capacity, working capital, bond premium, and bond term. These characteristics help you to better understand the different bonds and know how to choose the right one.

Whether you need a surety bond depends on your business partner and situation. Businesses and individuals alike typically seek surety bonds if they work with an unknown contractor. They are needed when a project or contract requires execution because they help compensate the obligee. If you’re looking to enter a venture or start a project, and you want to make sure you’re financially covered, getting one is a good idea.

Now that you’re all caught up with these 4 important tips, you’re ready to take on the world of surety bonds like a pro! When getting into surety bonds you need to know what they are and how to get them. Know the basics of the different types of surety bonds to know what you can and cannot be entitled to. Look at your unique situation and choose the surety bond that best fits your needs and circumstances.

What do you think?

Written by JR Dominguez

JR Dominguez is the technology, finance and music editor for MiLLENNiAL. When he's not writing, you can find him day-trading stocks, playing video games, or composing commercial scores.

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