Is Your Business Sure About Surety Bonds?

Whether your business is signing a contract or hiring outside help, it’s always nice to know tasks will be completed according to the agreed upon terms.

Interest & Risk ResizeHowever, sometimes contracts fall through leaving your business to pick up the pieces.

If you want to avoid this scenario, a surety bond may be necessary.

What is a Surety Bond?

A surety bond isn’t insurance, but rather a promise that an outside party will fulfill agreed upon terms and obligations.

There are three components to the surety bond process: the surety, the obligee, and the principal.

The surety is the person or company that assures all obligations of a contract or agreement will be fulfilled. The obligee is the recipient of agreed upon obligation – in this case, your business. Finally, the principal is the person or company performing the obligation.

If the principal fails to perform the obligation to completion, the surety, such as a surety bond company, will seek a resolution in favor of the obligee, which is your business. With that said, there are a number of benefits that go along with a surety bond.

Claim Handling

Disputes happen all the time in the business world, even among professionals.

If your business has a surety bond in place, then the surety company will handle all claims and disputes.

Whether it’s for the purposes of financial restitution or to find another party to step in and finish the job, a surety bond helps resolve issues quickly.

Cost-Effective Approach

In the article Surety Bonds: The Process, The People, The Price, the cost of surety bonds are described as the most important consideration of the bonding process.

Fortunately, surety bonds are much more affordable than other forms of contractual backing including letters of credit.

Letters of credit reduce your business’s borrowing capacity with your bank. This limits the size and type of contract you’re seeking.

Surety bonds on the other hand allow your business to use the maximum amount of financial resources available.

Numerous Bond Options

Unlike other types of contract backing, surety bonds give your business flexibility when it comes to terms.

Depending on the type of job you need completed, there are a number of surety bonds your business can use to its advantage.

From bid bonds to payment and performance bonds to ancillary bonds that ensure all requirements of a contract are performed, there is sure to be a surety bond that works for your business.

This is especially helpful for small businesses that don’t yet have a substantial line of credit to hire outside help.


At the end of the day, surety bonds offer business owners’ reassurance that a job will be completed no matter what happens.

Although a surety bond isn’t necessarily insurance; reassurance that contracts are going to be fulfilled is just as important as traditional insurance.

If you’re business is considering hiring contract work, keep in mind the business benefits of surety bonds.

About the Author: Adam Groff is a freelance writer and creator of content. He writes on a variety of topics including surety bonds and small business.