What is the meaning of a surety bond?

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Surety bonds are used in a wide variety of commercial transactions, business operations and court actions. A surety bond is issued by a surety company to guarantee the performance of one party to another party. If the agreement is not upheld, then the bond holder is entitled to monetary compensation.

Types of Bonds

There are many types of surety bonds, but they fall within three basic categories: commercial bonds, contract bonds and court bond.

Commercial Bonds

Commercial bonds are issued to a company as a condition of doing business, typically as a requirement for obtaining a license. For example, the Federal Motor Carrier Safety Administration requires that a freight broker's bond be obtained as a condition of receiving a property broker's license, which is necessary to act as a transportation broker.

Contract Bonds

Contract bonds are frequently used to manage risk on construction projects, both privately owned and public works. Different types of contract bonds can be required throughout each phase of the project, such bid bonds, payment bonds and performance bonds.

Court Bonds

Court bonds are used in conjunction with proceedings that by law require a bond to be posted, such as in guardianship proceedings, appeals and estates.

Obtaining a Surety Bond

Applying for a bond is a thorough process and a successful applicant must have sound finances and a good reputation.

Source:

Surety Bond Authority

Federal Motor Carrier Safety Administration: Surety Bonds

Surety Information Office

The Surety & Fidelity Association of America

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What is the meaning of a surety bond?

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