Getting a Surety Bond

Getting a Surety Bond

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Surety Bond Basics 

Although you may have heard the term surety bond before, do you know what it means? If not, don’t worry! This guide to surety bonds will explain how they work and why they’re important to have if you’re looking to start or grow your small business. From explaining surety bonds to getting one, there’s a lot that goes into this process, so read on for all the info you need to know! What is a surety bond? 

Why is everything called a surety bond?

Surety bonds are the oldest form of insurance. Archeologist discovered a surety bond written on an ancient Mesopotamia tablet from thousands of years ago.

The Term Surety bond is a generic term for all bonds. A Surety bond is a form of insurance that protects the obligee not you or your business. To try to simplify what that means, a bond is a form of 3rd party insurance. Bonds can protect the obligee from a variety of perils, but the majority of the time a bond protects the obligee for performance of contracts, fiducially duties, payments and malfeasance. 

Why do you need a bond?

The State and Federal government require bonds all of the time so they themselves can get indemnified because your actions in many cases impact large groups of people. Lets say the Federal government awarded a Contractor a large contract and the contractor never finished the project. If the Government required a Performance bond the Taxpayers investment would be protected.  The Surety would reimburse the Government or find a reputable contractor to complete the project. Another example would be if you bought a used car and the Dealer committed fraud, what do you do? Instead of taking the Dealer to court and suing them you can claim upon the bond and get reimbursed for damages. 


Unlike Insurance if you have a claim and the Surety pays out on that claim you/business are responsible for paying back the Surety. Right now you may be asking yourself why do I have to do that? Its something called indemnification. Indemnification means to make one whole, to restore you to the same financial situation before the claim. With Insurance the Insurance company indemnifies you or your business with Surety you are indemnifying the Surety and the Surety is indemnify the Obligee.

The three parts of a surety bond

Unlike an Insurance policy which has 2 parties You and the Insurance company, a Surety bond has 3 parties.

1. The Principal (you or your business) You are responsible for making sure your business or company abides by all governing laws. Having all paperwork filed correctly is crucial for your success because if something happens to go wrong, your principal will be held accountable for their actions if you do not have valid documentation proving that you are following state regulations you can have a claim.

2. The obligee (Typically the State, Federal Government or an individual) They are the one requiring you to have the bond

3. The Surety Company (the Company that backs and issues the bond) 

What do you need to do to get a bond?

First, find out if you need one. In most regulated industries (typically Auto, Contracting and Banking), surety bonds are required by law. For instance, in most states anyone who is considered a contractor must have a valid bond before they can do business. Once you’ve determined that you need one, it’s time to get it. Appling for a surety bond with our company is easy all we need is an application. We have over 7,346 bonds that are instant issue and are adding new bonds everyday. You can apply for your bond, get approved and buy your bond after completion of the Surety bond application.

Common bonds

Below are some quick examples of common bonds and what they are for:

Car Dealer bonds: in the majority of states have are required to maintain a Motor vehicle dealer bond.

● Falsifying or omitting details on the repair/accident history of the vehicle

● Issuing a fraudulent certificate of title

● Failing to pay the required motor vehicle fees (e.g., title, registration)

Contractor License bonds: Governing agencies enforce contractor license bonds as a way to protect the public against bad contractors. When the surety issues a surety bond, they are guaranteeing that the contractor will follow all laws and regulations, or risk penalties. Examples of covered incidents under a contractor license bond include:

● Failure to complete work

● Not finishing the work on time

● Exceeding the agreed-upon budget

● Violating building codes

Performance and Payment bond:

Performance bonds and payment bonds often go together (especially in construction projects), but they should not be confused as one and the same. Performance bonds focus primarily on the completion of the project, ensuring it's fully done and to the expected standard. Payment bonds ensure that the contractor pays their subcontractors, laborers, and suppliers. Essentially, these bonds guarantee that all parties involved in the contract are paid fully and timely.

License and permit bonds:

Often required by municipalities to protect the general public against dishonest practices, this bond ensures that licensed professionals comply with certain laws and industry regulations.

BMC-84 bonds:

BMC-84 bonds are a type of surety bond required by the Federal Motor Carrier Safety Administration (FMCSA). This bond is intended to protect shippers and motor carriers from bad broker practices, like fraud, failure to pay trucking companies, and other contractual shortcomings.

Fidelity bond:

may also be purchased when employees have access to the client’s personal property (e.g., home cleaning services).

• Destruction of company property

• Embezzlement

• Theft, burglary, or robbery

• Forgery

• Fraud

Janitorial & cleaning bond:

A specific type of fidelity bond for business owners that offer janitorial and cleaning services.

Financial institution bond:

This bond protects banks, insurance companies, and other financial companies against dishonest employee actions.

ERISA bond:

Any institution that handles funds related to an employee benefit plan, such as a 401(k) plan, must obtain an ERISA bond.

Mortgage broker bond / Mortgage Banker Bond:

A mortgage broker surety bond is a type of license and permit bond specific to mortgage brokers and is part of the licensing process. Your governing agency requires this bond because it protects other parties from bad broker practices that could lead to financial loss.

Lost Title Bond:

Lost Title Bond If you purchase a car from a private seller (not from a car dealer) and didn’t receive a title, then you’ll need to purchase and maintain a lost title bond for a certain period. The lost title bond is a financial guarantee that you make if somebody else contests rightful ownership over the vehicle. If your bond goes unchallenged for the required duration, then the DMV can issue a new title under your name.

Probate Bond:

Probate bonds are a larger umbrella that houses several types of court bonds. Some common types include:

Administration bond: Required when you’re appointed to oversee a deceased individual’s estate.

Conservatorship bond: Required when you’re appointed conservator and become responsible for managing another’s financial affairs.

Guardianship bond: Required when you’re appointed guardian to a minor or incapacitated individual — typically responsible for medical decisions and meeting the ward’s day-to-day needs.

Sales Tax Bond:

Sales Tax bond A sales tax bond is a type of surety bond that ensures a business pays its local and state sales taxes. The tax is imposed by the state government and businesses must show proof of the bond to legally operate their business. 

Visit our list of bonds by state to get a closer idea of your bonding requirements. To learn more about surety bonds in general, check out our free surety bond guide.

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