What is a Surety Bond?

Surety bonds are legally binding contracts between three parties. It is a promise to be liable for the debt, default, or failure of another. One party (the surety) guarantees the performance or obligations of the second party  (the principle) to the third party (the obligee). In essence, a surety bond is used to ensure government contracts are completed, to cover losses arising from a court case, or to protect a company from employee dishonesty.


What You Should Know About Surety Bonds


What is a surety bond?

Surety bonds are a promise by a surety company to pay a first party if the second party fails to meet its obligations. It involves:

  • The principle – The person who must make good on an obligation
  • The obligee – The person who needs a guarantee that the principle will reform
  • The surety – The issuer of the surety bond guaranteeing that the principle will meet its obligation


A surety bonds also help principles, who are most often small contractors, to compete for contracts by reassuring customers that they will receive the product or service as promised.


In order to obtain a surety bond, the principle pays a premium to the surety, typically an insurance company.


What are the different types of surety bonds?

There are many different bonds available, depending on the industry and needs. Generally, there are two broad categories – contract surety bonds and commercial surety bonds.


Contract surety bonds are written for construction projects. The obligee (the project owner) will seek a principle (the contractor) to fulfill a contract. The contractor will then obtain a surety bond through a surety bond producer. This means that if the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for any financial loss incurred.


Commercial surety bonds cover a wide range of surety bonds that guarantee performance by the principle of the obligation or undertaking described in the bond. In various situations, they may be required of individuals and businesses by the federal, state, and local governments.


Ready to find the right surety bond? Contact the team at Northeastern Group Ltd. to get started. We serve New York, New Jersey, Connecticut, Pennsylvania, Georgia, and Florida.

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