What is a surety bond? In the most simple of terms, a bond is a guarantee, or pledge to perform some sort of obligation, whether verbal, or written, or an activity or behavior that is required under the law. What kind of obligation? Just about anything can be “bonded”! When someone says, “my word is my bond”, they’re saying, “my word is my guarantee”. However, sometimes a person’s individual pledge is not enough, and a third party, or surety, is required. The dictionary defines “Surety”, as “a person who takes responsibility for another’s performance of an undertaking”. Thus, a surety is, in actuality, a third party who becomes a guarantor of, or responsible for, another’s obligation. If the party who is guaranteed (or, bonded) fails to perform, the surety is required to do so.
The three parties to a surety undertaking are the Principal (or applicant), the Obligee (entity that desires the guarantee) and the surety (guarantor of the Principal’s activity). In today’s modern business, a surety can be an individual, but is more likely for financial reasons to be a corporation. Sureties charge fees in exchange for the risks they take.
Surety bonds are found everywhere and many individuals and businesses alike rely on them for their successful operation. Most surety bonds are required by law and are designed to protect tax payer dollars due to potential failure of businesses to perform. Surety bonds also protect consumers. Contractors for example, use surety bonds to guarantee their performance under construction contracts and also to guarantee payment of all job related bills. Homebuilders and developers use surety bonds to guarantee that improvements are properly installed in subdivisions. When a license is issued to a business, surety bonds are used to guarantee that all the provisions of that license are followed, including, in many cases, obligations to protect consumers. Executors of estates are frequently required to use surety bonds to guarantee that estate funds are properly accounted for and distributed in accordance with the law. The list of bonds is lengthy.
When someone says, “I need a bond!”, the same questions apply, regardless of industry, situation, etc. They are; a) what is the nature of the guarantee? b) who is asking for the guarantee (or, who benefits from the guarantee)? c) is it likely the guarantee can be performed successfully by the applicant? If the surety is able to determine the Principal has the experience, capacity and capability to successfully complete the obligation, the bond is usually approved.
Have any questions about a bond? Need a bond? Contact the experts at KOG International, Inc! www.kogbonds.com (610) 399-4080 PA Office (302) 382-7489 DE Office