Surety Bond Requirements

Surety bonds are required for numerous roles, professions and court processes. Though there are some federal surety bond requirements, most are set at the state level. This means that bond requirements can vary significantly depending on where you live, so it’s essential that you check the rules in your state before you apply.

Factors Affecting Surety Bond Requirements

All surety bonds are agreements between three parties: the principal, the obligee and the surety. The principal is the person or entity that needs to get bonded. The obligee is the body or organization that has required the bond, and the surety is the party providing the bond.

While the structure of a surety bond is the same across the country and across all industries, the exact requirements for different bonds can vary considerably. Understanding these variations will help you secure the right surety bond for your needs.

Surety bond requirements are affected by two main factors: location and industry. A lot of states set their own bond requirements. Industry licensing bodies also often have the power to lay out the rules and regulations for the bonds they use.

Requirement Variations by State

One of the main factors impacting surety bond requirements is location. State laws and regulations dictate the requirements for many types of bonds. For example, a general contractor in Alabama will need to obtain a license – and therefore a contractor license bond - if they want to work on projects worth more than $5,000. However, contractor license bonds are only necessary in North Carolina on projects with a value above $30,000.

Some requirements remain the same no matter where you’re based. The bond requirements for freight brokers are virtually identical in all 50 states and freight broker bonds always have a bond amount of $75,000.

Bonds that are required for public jobs – like performance bonds or bid bonds for construction projects - are generally set by the government and are not state dependent. However, in some cases, private entities and general contractors will also require this type of bond form when working in certain areas. In these cases, the bond requirements may be set by state authorities.

It’s common for court bond requirements to be determined at state level. So, if you’re appointed a fiduciary by a court and need to get bonded to support your role, you’ll have to check local rules before you apply.

As well as having different requirements for standard bonds, some states have created their very own location-specific bonds. Two of the most common examples of this are the Florida Health Care Clinic Surety Bond and New York Second Hand Dealer Bond.

Requirement Variations by Industry

As we’ve seen, required bond amounts can vary depending on location. The other factor that influences bond requirements is industry.

There are hundreds of industries that require the issuance of surety bonds. Some sectors use payment bond requirements to ensure subcontractors are properly compensated when their work is complete. Others impose contract bond requirements to ensure companies and contractors carry out their roles within the law and to the required standard.

Numerous industries commonly use license and permit bonds to protect the public from financial loss and ensure companies and contractors meet certain standards. Some of the most common types of license and permit bonds are:

Auto dealer bonds form part of auto dealer licensing requirements in the vast majority of states. Without securing an auto dealer bond from a surety company, dealerships are unable to sell cars to commercial or private buyers. Cancellation of a surety bond will result in a license becoming invalid.

Likewise, freight brokers aren’t allowed to arrange shipments without first securing a freight broker bond and freight broker license.

Contract license bonds are used in lots of states to ensure tradespeople meet certain professional standards. If a contractor breaks the rules and regulations governing their industry, the bond acts as a financial guarantee that anyone who suffers losses as a result of this action will be reimbursed.

The surety bond cost of contract license bonds varies depending on the profession and on the value of work that’s taken on. It’s essential to check requirements with your licensing body before applying for your bond.

There is one type of bond that’s applicable to all industries. It’s called an ERISA bond and is designed to protect the beneficiaries of employee retirement and benefit plans. An ERISA bond guarantees that beneficiaries will be reimbursed if fund managers steal or misuse plan funds. They are required for both large and small businesses in all industries.

Because there are so many different surety bonds available, it’s essential to talk to the bonding company underwriting your bond before you buy. They’ll be able to tell you everything you need to know about your mortgage broker, notary, freight broker or auto dealer bond, or any other type of bond you require. Get in touch today to find out more.