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| Surety bond * What is a surety bond? * What is the process to obtain a bond? * How do surety bonds work? * What good is a bond if I have to pay for claims? * Why do I need a surety bond? * Who is the obligee? * What is the turnaround time? |
Surety bond
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Definition: In the simplest terms, a surety bond is a guarantee. What the bond guarantees varies depending on the language of the bond. It is a form of credit, not insurance.
What is the process to obtain a bond?
To start the process you need to apply. You will then be given your premium cost and an agreement between you and the bonding company. The bond is then issued 1-2 business days from receipt of payment and the agreement (original agreement is often required).
How do surety bonds work?
The principal (you) pays a percentage of the bond amount called a bond premium. In return, the surety extends ?surety credit? to make the required guarantee (the bond). A claim can arise when the principal does not abide by the terms of the bond. In the event of a claim, the surety will investigate to ensure it is valid. If the claim is valid, the surety will look to the principal for payment of the claim and any associated legal fees.
What good is a bond if I have to pay for claims?
A bond is not insurance, it is a form of credit where the principal (you) are responsible to pay any claims. The alternative to a bond is to post cash or a letter of credit. Surety bonds are advantageous, as they typically require no collateral, which frees up capital. Bond premiums are also similar to fees for letters of credit and are typically less than one would earn making conservative investments with the available capital.
Why do I need a surety bond?
Simply because a government authority or private entity is requiring the bond in order for you to operate. The bond ensures you will follow their guidelines.
Who is the obligee?
The obligee is whoever is requiring the bond of you. You are not the obligee. For example, the obligee for a contractor would be whoever they are doing the work for. The obligee for a license bond (e.g. auto dealer or
mortgage broker) would be whoever they are filing their license with.
What is the turnaround time?
Approval time varies depending on the type of bond and the program the applicant falls under. Some are approved immediately, others can take up to 1 business days. Bond issuance is typically 1 business days from receipt of payment and anything else required by surety for issuance of the bond.
Surety Bond TX
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