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.