A surety bond is a financial guarantee involving three parties…
- Principal – The person or business required to fulfill an obligation (e.g., a contractor).
- Obligee – The entity requiring the bond (e.g., a government agency).
- Surety – The company that issues the bond and guarantees the principal’s performance.
How It Works
- The principal obtains a surety bond from a surety company, which promises to cover losses if the principal fails to meet obligations.
- If the principal does not fulfill their duty (e.g., completing a project or paying a debt), the obligee can make a claim.
- The surety investigates the claim and, if valid, compensates the obligee.
- The principal must then repay the surety for any money paid out.
Common Uses of Surety Bonds
- Construction Projects – Ensuring contractors complete work as agreed.
- License & Permit Bonds – Required for businesses to operate legally.
- Court Bonds – Used in legal cases to guarantee compliance with court rulings.