The Logistics Of How Surety Bonds Work & Why They’re Needed

Some business owners, upon hearing that they are required by law to get a surety bond, are stumped and have no idea how to proceed. Many people don’t know what a surety bond is or how they came about… much less how to get one!

A surety bond is a guarantee that’s put forth by a company in reference to a service provider and their agreement with you. The guaranteeing company will ensure that whatever promises that provider made to you will be completed. This company offering the guarantee offers it in the form of a bond, and they’re called the “guarantor”. The service provider who has entered into an agreement with you is called the “principal”. In this scenario, you are called the “oblige” and you’re protected by the bond.

The company who applied for the bond gets no protection, unlike insurance. A bond is sort of like the reverse of an insurance policy – it’s designed to protect the person who hires the company holding the policy, not the company itself.