The people who hire contractors, or do business with companies providing such services, are only protected when those operators present surety bonds that serve as a financial guarantee relating to the quality of their work. Since bonds function in many different capacities, the type of protection a bond offers will vary depending on the specific type of bond that the individual or business has purchased.
While understanding the bonding process can often seem a bit complicated or confusing for those unfamiliar with it, bonds are simply a way of protecting valuable investments, including those of clients who trust those making important decisions on projects that they are invested in.
Bonds are required for most companies and contractors
State government requires a wide array of individuals and businesses to become bonded. The point is to discourage anyone from participating in fraudulent activities. However, if the principal (or the “bonded entity”) is deemed to be unethical in how they operate their company, then the consumer (or “the obligee”) can make a claim against the bond.
Once the claim is filed, the surety company compensates the obligee for damages, leaving the principal paying retribution up to the bond’s full value. Surety companies base their rates and premiums on a number of factors including the type of bond and the principal’s financial standing. Bonds usually cost between one and three percent of the bond’s face value.
In some cases, a bond’s cost may be higher when, for example, the principal’s financial history contains negative reports. The surety would consider himself or herself to be at greater risk when offering a guarantee on the work being provided by the principal. A principal with a poor credit history may need to seek out an agency willing to issue non-standard bonds to high-risk clients.
For those wishing to engage in this type of work, but aren’t sure which surety bonds will give them the best protection for their needs, State and local government bonding requirements and regulations can be found online quickly and easily. Also realize that bonds may be required before a business can receive a license to operate in this state. Contact friendly surety bond specialists to help find and secure the right bond for your business needs.