Why do I need a surety bond?

Category: Uncategorized
Published: Jan 9, 2009
If you’re like most people, you probably have no clue what a “surety bond” is.  There are a lot of people out there that may have been required to purchase a surety bond, or currently have one, but still do not completely understand what it is or why they were required to purchase the bond.

So why are people required to purchase surety bonds?

The simple answer is that you (the principal) would like to do work with someone, or some government entity, that is requiring you to purchase a surety bond (the obligee).  However, WHY is the obligee making you obtain the surety bond?  The answer to this question will vary depending on the type of business you are involved in, and the specific type of surety bond you are required to purchase.  There are literally dozens of different types of surety bonds, but for simplicity we can break them down into three major categories:  Commercial Bonds, Contract Bonds, and Court Bonds.  Commercial bonds are required to cover the person the principal is doing with work, known as the obligee.  Contract bonds are a means to ensure that the principal will complete the work for the obligee per the terms of their signed agreement.  The last category of surety bonds, court bonds, can be required by the obligee for numerous different reasons.  Guardianship bonds, a type of court bond, are in existence to guarantee that a guardian acts in the best interest of the minor and/or incapacitate person who they are responsible for.  Another type of court bond, appeal bonds, are required to ensure that someone found guilty in a court of law does not flee from authorities.  And the list goes on…

As you can see, different surety bond types are required for numerous reasons.  If need to purchase a surety bond, and would like to know more about what it is and why you are required to obtain the bond the best thing you can do is take a close look at the blank bond form for that specific surety bond to find out what exactly it is guaranteeing.  These forms will provide detailed information for each bond type.  The previous paragraph only provides general information on the three major surety bond categories.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.