Should You be Requiring a Surety Bond for Your Business?
It’s a must for you to understand the importance of surety bonds and how they prove beneficial to contractors in various forms. These forms are simply an agreement between three parties.
Before you could obtain a surety bond, you must understand the importance of surety bond and what role it plays in today’s business scenario.
What is a “surety bond?”
The fact cannot be held for denial that surety bonds are the ones that have been around for almost a millennium in some form or the other. Some people may be living with a perception that these bonds are considered more like an expense without cause that actually cuts into profits while other qualified companies may recognize surety bonds as a passport of some sort letting them bid only on those projects they can get over with soon. Construction companies looking for public or private sector comprehend the fundamental importance of these bonds.
Surety bonding can be understood as an economical way a contractor assures that the required job will be performed as per the requirements that too within the stipulated time frame. Bonds of these types seem immensely beneficial to contractors in various terms. The low cost, their assets being free from being tied up assuring job performance, which would restrict their ability to perform many jobs.
If we talk about from the customer’s point of view, the meaning of “Surety bonding” seems clear to them when timely payment is initiated to get any job back on track if a contractor isn’t able to live up to their contractual obligations. Another benefit that is often ignored is that a surety bond can be written for the purpose of guaranteeing the payment of the customer to the contractor.
However surety bonds are often misinterpreted due to the fact that purpose is different depending on the perspective you have in mind. They act as part insurance and part credit. And they somehow leave one in a perplexed state of mind.
They are in fact a contractual agreement between a project owner or business committing that the project will be completed or business regulations will be adhered to. If we these bonds in a simple way, they guarantee that specific tasks are taken care of. And this is achieved when three parties namely, the principal, the obligee, and the surety are in a mutually, legally binding contract.
The obligee has the right to make a claim to recover losses if the principal isn’t able to fulfill the said task. And if the insurance company finds the claim to be valid, the compensation to be granted cannot exceed the bond amount.
Reference: Surety Bond Professionals