When making business deals across industries, it’s important that all involved parties agree to reasonable terms that are documented at the outset. In setting agreed-upon terms, expectations are effectively managed around payments and performance, but they also need to be lawfully enforced.
Surety bonds provide a written guarantee that terms will be fulfilled for three-party contracts which involve a principal, obligee, and surety provider. These bonds protect against financial loss in the event of fraud, malpractice, or other failure to fulfill contractual duties of different types of business deals.
At Doeren Mayhew Insurance Group, we understand the complexities of the surety bond market and the associated local, state, and federal licensing regulations. From licenses and permits to court, commercial, and construction bonds, there are different types of surety bonds that we offer in order to provide optimal protection.
Learn more about the three parties of a surety bond, how surety bonds work, and how we can help protect your financial stability in the face of contract breaches below.
The Parties of a Surety Bond
A surety bond is purchased by a principal, or business owner, who assumes the responsibility of executing the agreed-upon tasks or work per the contract terms. This principal is backed by the surety provider, or insurance company, that becomes liable for any claims of fraud, malpractice, or other failure to deliver on the contractual duties up to the bond amount. The third party involved in a surety bond is the obligee, which is usually a governmental agency — but can be a company or individual in some cases — that actually requires that the principal purchase the bond.
How Surety Bonds Work
When you need a surety bond, it’s important to work with a specialized surety bond agency who understands the specific bond requirements in your industry and state. Also, you’ll need guidance as you consider the bond premium, maximum amount, length of the bond, and minimum requirements for the surety bond. Once an application is submitted to an approved surety agency in your state, an evaluation of the principal’s resources and capacity to fulfil the terms of the contract will take place.
The reviewers will also assign a risk category and premium, or price of the bond. A typical surety bond is issued rather quickly in about one to two days and the standard bond length is between one to four years. Once the principal signs the agreement in favor of the surety, repayment terms are mandated and the financial interests of the obligee are officially protected.
At Doeren Mayhew Insurance Group, we can help you find the right surety bond for your business. We specialize in safeguarding your business against contract breaches that may negatively impact your financial future. Contact us to learn more about surety bonds or to schedule a consultation today.