Many people do not understand why they need to obtain surety bonds, let alone understand what they are. If you want to find out why you need a surety bond, you have discovered the right place.
An obvious answer to this question is because it’s being required of you (by the obligee). Why is the obligee requiring a surety bond of you in the first place? If no one is requiring a bond of you, you are looking for a fidelity bond, not a surety bond. Watch our video to learn more about fidelity bonding.
How Do Surety Bonds Work?
Surety bonds are required to protect the public. They guarantee obligations will be fulfilled, whether it’s a contract bond guaranteeing a public construction project will be completed, a license bond guaranteeing an auto dealer will abide by the laws or a court bond that guarantees a legal guardian will handle a minor’s finances properly. These specific examples are a small overview of the hundreds of surety bonds out there, but they all have one thing in common; they protect the public, not you.
Your Surety Bond is a Form of Credit
You might wonder “how does paying for a surety bond guarantee anything or protect the public?”, and that’s a great question! When a surety company provides you with a surety bond, which you learned is a guarantee; they are vouching that you will follow the bond terms. If the bond guarantee is not fulfilled and damages are caused, a claim can be filed.
Taking an example from above, if a contractor that was hired to make structural improvements to a building walks off the job before completion; a claim can be filed. The surety company will hire a new contractor to finish the project and pay the claim initially, but will come back to the bond holder for reimbursement of the claim, along with any additional costs incurred to get the rest of the job done. As long as you operate ethically and according to the bond terms, you have nothing to worry about, and the public has a layer of protection from the deceitful.
Still Have Questions?
Now you know why you need a surety bond. If you still have questions, feel free to leave a comment below, contact a bond expert in our office or visit our education center to learn more about surety bonds.