Commercial bonds cover a very broad range of industries and bond types. Commercial surety bonds are typically required by federal, state, and local governments to ensure compliance with various statutes, regulations, and ordinances. They can commonly divided into five types of bonds:
A surety bond guarantees the performance of a contract or other obligation. If the principal fails to fulfill the contract or obligation, the injured party (claimant) can file a claim with the surety company, against the principal’s surety bond. If the surety deems the claim to be valid, the surety will pay the claimant reparations up to the bond amount. The principal is then responsible for the repayment of the claim amount, plus fees and expenses to the surety.
An obligee is an individual, partnership, corporation, or government entity that requires the guarantee that an action or service will be performed. In other words, it is the entity that requires the surety bond.
A bond term is the length of time a surety bond is effective. A surety bond could have a term of anywhere from four months to one year, two years, or five years, etc. The start of the term, or the effective date, typically depends on when you apply for and purchase your bond. Some bonds, however, may have pre-determined term dates.
Surety bonds are not the same as insurance. Insurance is a means of protection from financial loss. A surety bond guarantees the performance of a contract or other obligation. For instance, renters' insurance may protect you from damages if your apartment floods.
In contrast, if you are the principal on a surety bond and fail to uphold the regulations of the contract or obligation that the surety bond guarantees, a claim may be made against your bond. If the surety finds the claim is valid and pays the claimant reparations, you will be responsible for reimbursing the surety the total claim amount plus fees and expenses.
A surety bond does not technically "protect" anything in the way you may think car insurance protects you against financial loss in the instance of an accident. Instead, a surety bond guarantees the performance of a contract or other obligation. At best, a surety bond protects the obligee, not the principal.
Fidelity bonds such as business services and dishonesty bonds are the exception because there is no obligee. Those bonds typically protect a business from the fraudulent acts of its employees.
There are hundreds of instances where someone may be required to get a surety bond. Individuals and/or businesses may need a surety bond to fulfill a licensing requirement (e.g., contractors, freight brokers, used car dealers), to protect their company from dishonesty/fraudulent actions by an employee, or to meet court requirements for probate.
The price of a surety bond varies depending on the bond type, bond amount/penalty, and (potentially) your credit and personal or business financials. Some surety bonds have a standard rate and can be purchased instantly. Others may require a soft credit check and/or financials. As such, surety bonds can cost anywhere from $35 to upwards of $10,000 and higher.
Generally, surety bonds are not refundable. If you purchased a bond and quickly discover you didn't need it, the surety may approve a return of premium at a prorated amount. Some bonds, such as court bonds and other contract bonds, cannot be canceled without a release from the obligee.
Surety bonds are typically paid for as an upfront, one-time payment. There is no monthly premium, only the single-term premium quoted to you. Most bonds can be renewed at the end of the bond term if the bond is still required.
No, surety bonds do not have a monthly premium. You pay the full premium quoted to you before the bond is issued. Once paid for, the bond is issued and becomes effective for the length of the bond term or until it is canceled. Some sureties may offer financing options, but this depends on the bond type and surety company.
There are two primary factors to acknowledge when considering surety bonds. The first is the bond amount (or bond penalty), the second is the premium (what you pay). Bond amounts vary by the type of bond and what the specific obligee requires. A bond amount could be anywhere from $100 to upwards of $500,000 and even higher for certain bonds. The premium is then calculated as a percentage of the bond amount. The percentage is either a standard rate or calculated based on credit and/or personal and business financials.
If the type of bond you need does require a soft credit check, we work with multiple sureties to try to get you approved and find you a competitive quote. Fortunately, some surety bonds do not require a credit check and can be purchased instantly online.
Some surety companies may require collateral as a contingency of underwriting your surety bond. Whether collateral will be required depends on a variety of factors including the type of surety bond you need, your credit, personal and business financials, and the length of time your company has been in business. For instance, lien release bonds may require collateral.
The length of time a surety bond is good for—a bond term—depends on the type of bond. Some bonds have a term of one year from the effective date of the bond, others have terms of two, three, or more years. The effective date may be the same as the date you purchased the bond (i.e., the issue date), or some other date approved by the surety. Other bonds have a set expiration date (i.e., December 31st, annually), so the length of the bond term will depend on when you purchase your bond.
Many surety bonds can be cancelled, however, some cannot. There are three main categories of surety bonds that typically cannot be canceled without additional documents: court bonds, lien release bonds, and some contract bonds. These bonds generally require a release from the obligee to be canceled.
A surety will typically send a cancellation notice to the obligee if the bond has not been renewed once it expires, or if the surety declines to offer a renewal quote. When a cancellation notice has been sent out, typically the bond has already been canceled and may or may not be eligible for reinstatement.
How long it takes to get a surety bond varies from agency to agency and the type of bond you need. Some bonds you can file with your obligee the electronic bond we send you instantly after you pay for your bond; otherwise, your bond will be sent to you in the mail. We offer either overnight shipping for an additional fee or standard shipping for free with the United States Postal Service.
Finding a reputable surety bonding agency that works with multiple sureties will help ensure you get the bond you need for the best value. BOSS Bonds is licensed in all 50 states, including the District of Columbia, and works with multiple sureties to find you the best quote for the bond you need in.
Get the peace of mind that comes from knowing you're in capable hands when you choose BOSS Bonds for all your surety needs.
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