Is obtaining a surety bond worthwhile?
In my opinion, obtaining a surety bond is extremely beneficial in that it provides security for both private business owners seeking government contracts and the government agencies awarding contracts to these businesses. It gives both parties peace of mind knowing that there is a third party guarantor of payment should either party not complete its obligations adequately or at all.
Just recently, I assisted a business owner get bonded through our company for a contract with a government agency. He had been looking into obtaining one for about three years but was asking himself, “Is it worth it?” Two days after getting bonded, the agency awarded him the contract he has been seeking for so long which will keep his doors open and allow him to support his family.
This case demonstrates how important it is to have this paper in place before even entering negotiations on a project with an agency because contracts are only awarded to those that possess the necessary documentation. If you are a business owner and would like to know if obtaining a surety bond is worthwhile, then please call our office to speak with one of our qualified agents.
What are the benefits of obtaining a surety bond?
A surety bond is a written agreement between an individual or business, called the Principal, and a third party referred to as the Surety. The document requires that the Principal follows all rules and regulations laid out by local, state, or federal law. If any of these rules are broken then the Surety will be required to cover any costs that go beyond what is normally expected of them under this agreement.
Saves money on expensive down payments
Helps avoid liens on your property. Liens are claims filed by creditors against properties for outstanding balances owed. If one is avoided, sales can go through without issue which could have larger implications.
A surety bond is not a form of credit. It is the equivalent of a guarantee that the Principal will be able to live up to their agreement as laid out by the Surety. This means no down payment, monthly payments, or hidden fees. In addition, there’s no need for collateral either which could have been taken as a form of security in the event of non-compliance from the Principal.
As stated above it helps avoid liens on your property. Liens are also a hindrance when selling a house because any buyer may choose not to purchase your home if they come across one during their due diligence process. If this happens then you’ll have just lost out on what could have been a life-changing sale of your home.
What is the purpose of a surety bond?
The purpose of a surety bond is to ensure that the obligations, promises, and representations made by an individual or company are upheld. A bond may be required for many different reasons; all depending on what type of agreement has been formed between two or more parties.
For example, if you have applied for a government position there may be certain requirements that you must meet before being allowed to start work. One of these requirements will usually include having to provide proof that you have obtained a surety bond. The terms ‘surety’ and ‘bond’ are often used interchangeably but they actually mean slightly different things:
An agreement by one or more persons to become responsible for the debt, default, failure, or miscarriage of another; esp., a person who agrees to make good a debt, obligation, or other liability of another.
Is a surety bond going to safeguard me?
A surety bond is a legal written commitment that an individual or company will perform according to the stipulations of the contract.
A surety bond can protect you in many situations; it can assure your customers, vendors, and other contractors that you will be accountable for payment should you go out of business or otherwise fail to meet your obligations. It may also reassure licensors, customers, and other interested parties that your performance on contracts will be conducted responsibly.
Many states require surety bonds for certain types of licenses; even if this isn’t the case where you live, it could pay dividends to get bonded just because doing so makes sense for practical purposes. One common use of bonding today is in public construction projects.
Insurance is an agreement whereby one party, the insured for consideration of the premium, agrees to compensate another party the insured for specified loss, damage, or liability arising from an uncertain, future event. If you are interested in finding out more about surety bonds and other types of insurance that can protect your business, contact our office for further information; we will be happy to provide the guidance you need to make informed decisions about protecting your financial interests.
What is a surety bond’s purpose?
A surety bond’s purpose is to ensure that the principal performs their duties and obligations as specified in the contract. In other words, a surety bond is a three-party arrangement. The first party is the obligee who has been wronged by the second or third party when they fail to fulfill their contractual duties.
The second party, usually an insurance company, agrees to compensate for any losses when the principal defaults on their obligation; then becomes financially responsible for fulfilling that obligation.
The third party, which would be you if you apply for a contractor license, is referred to as the “principal” who agrees to pay damages for losses incurred due to failure of performing under contract terms. Thus, your state licensing agency may hold you liable for damages created by your business related to your trade if you fail to fulfill the terms of your contract.