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Common types of sureties and how they work



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A surety bond is a contract that ensures that specific obligations are fulfilled. These bonds are often required for contractors working on government contracts. They are performance based. A surety bond is a guarantee between three parties. The parties to a surety bond are:

  • Principal: The person who must have a surety bond.
  • Obligee: The person requesting bail.
  • Borgensbolaget: The company guarantees payment to Obligee in a claim.

Should the Client fail to fulfill his obligations when performing contract work, the correct type of guarantee pays to the Obligator, and the Client must then reimburse the Guarantor.

Types of suretyships

Guarantees are available in several types, each of which provides protection for Obligee. These include:

  • Contract bindings: These bindings are put in place and are often required for large construction projects. These are the most common type of surety bonds and are set up to protect Obligee when the Client does not fulfill its contractual obligations. The bound party is financially responsible.
  • Commercial Bonds: A commercial bond may require certain commercial legal entities to obtain a license. These commitments are aimed at ensuring that professionals act legally and ethically when practicing their profession. A party who violates these standards is held liable.
  • Judicial relations: A legal relationship may be required in certain legal proceedings. These bonds are usually required in civil proceedings.
  • Loyalty bonds: These surety bonds protect companies and their customers if an employee acts illegally. Many business owners are adding this extra layer of protection to their corporate insurance portfolio. A fidelity relationship can be of great benefit to entrepreneurs who face legal consequences due to an employee’s actions.

Contractual guarantees

These guarantees are put in place to ensure that a contractor (the client) performs the work in accordance with the agreement. How the bond is written will vary depending on the type of contract. Contract guarantees vary in cost and reflect the contractor’s financial position, creditworthiness, work history and other factors. These bonds come in four basic types:

  • Tender commitments: These commitments are put in place to ensure that a contractor can deliver the work submitted in a tender.
  • Performance Guarantees: These sureties protect Obligee if a contractor does not complete a project written by the contractor.
  • Payment Bonds: These bonds protect an Obligee if a contractor fails to pay subcontractors for a project and is usually a requirement for contractors on federal and commercial projects.
  • Maintenance Bonds: These surety bonds are often referred to as “guarantee bonds.” They are put in place to protect the project owners from losses in connection with incorrect material or poor execution of a project.

Commercial sureties

These bonds may be required for licensed companies that perform government work. These bonds are usually a requirement for specific companies, including those that sell alcohol, car dealers, licensed contractors, notaries and other licensed professionals in various industries. There are several types of commercial sureties, including:

  • License and permit: If you are applying for a professional license, you may need to purchase and submit a license or permit guarantee.
  • Mortgage brokers: Mortgage brokers are put in place to protect borrowers if a mortgage broker fails to act ethically as required by the state.
  • Other: Other types of sureties may be required by liquor companies, utilities, warehousing companies, car dealers and many other business activities.

Do you need a surety bond?

If you need to put a surety bond in place, contact our local agent to help you find the right type of bond for your purpose at a reasonable rate.


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