The Basics of Getting Bonded

If you own a business that has become obligated to get bonded, what follows are the basics of becoming bonded and what a surety bond is. The first step in understanding the importance of getting bonded is understanding what a surety bond is. A surety bond is a form of insurance that protects a party in the event a client or business cannot repay a debt or meet the terms of a contract. Therefore there are two sides of the agreement that a surety bond is involved with. The first are the people who could potentially default, called the principal party. The second is the group who is hedging their investment by requiring a surety bond, called the obligee. Finally, in order to make the surety bond official, a surety bond company handles the contract. Here a surety bond company acts as an insurance institution to which the principal party pays a principal for their coverage.

Obligee

Examples of obligees include private business and municipalities. These types of institutions require a surety bond in case you fail to meet a payment or fail to meet a contractual obligation. These contractual obligations include promises to consumers or theft from consumers. Basically, it forces a principal party to conduct business honestly. 

What Surety Bonds Protect

Let’s take for example a small business that is going through a remodeling phase. Remodeling can be an extremely time and labor consuming process, and hiring a good contractor is extremely important. Before hiring a contractor, even if they have a great reputation, a surety bond is the best way to get peace of mind that the job will be completed without too many price surprises, or delays in completion. What is being described here is a performance based surety bond. Performance based surety bonds insures before work begins, that the contractor will adhere to some basic promises such quoting a fair price and promising a timely completion. The other side of this situation ensures that the small business owner who hires the contractor will pay the supplier of labor for the work that is done.

Bid Bonds

A bid bond is a form of surety bond that ensures a contractor, who agrees to perform a job, cannot back out of the agreement once they take the job. A bid bond gives a small business owner a guarantee that once a contract is devised, that the contractor can switch to a higher paying job or less work intensive job if it arises. 

Maintenance Bonds

A maintenance bond is one that will ensure the work done is high quality, and any type of break or issue in the outlined time period will be covered by the contractor. A maintenance bond is comparable to a warranty. This is especially important for small business owners who want to make sure that the remodeling job is done well, and that any issues with it will be taken care of by the contractor at no extra charge.  

Regulations

It is necessary to do some research on the requirements of getting bonded before going about it. Every state has different regulations, and different jobs have different forms of surety bonds. Always remember to read the fine print, a little time spent on preparations can save you a lot of time and money down the line.