If you work in an industry that involves providing a service, you may be required to buy a surety bond in some situations. Not every contractor or worker has to buy a surety bond, but they are becoming more common when dealing with large amounts of money and on larger projects.
How Surety Bonds Work
The basic idea behind a surety bond is that you are buying a bond which will insure your work for another party. For example, when you enter into a project with another party, the party may require you to buy a surety bond. A surety bond provider then checks you out to make sure that you are capable of completing the project. The surety bond provider then gives you the bond. If you do not complete the project up to the standards of the customer, the surety bond pays them for their inconvenience.
Surety Bond Required
Depending on your industry, you may not always have to buy a surety bond every time you enter into a project. You will know if you are required to buy a surety bond when you get information about a project. For example, when a company wants a construction project completed, it will request bids on the job. On the bid request form, it will say that a surety bond is required from all bidders. In some cases, local governments also make you get a surety bond to cover any general work that you do.
How Surety Bonds Are Purchased
When you enter into a project that requires you to get a surety bond, you can usually buy one in a few different ways. For example, you can go into a local insurance office and talk to the surety department. Most insurance companies that sell commercial insurance also sell surety bonds. You can also get a surety bond from a company that specifically sells surety bonds to contractors. You simply have to fill out an application and then if you are approved, you have to pay for the bond.
Where Surety Bonds Are Used
Surety bonds can be used in many different situations. One of the most common situations in which surety bonds are used is in the bidding process. For instance, when a company needs a large building completed, it requires bidders to submit surety bonds. This way, if the bidder cannot complete the project as they bid, the company who requested the bids can be compensated for lost time. These bonds are also used when a contractor undertakes a project. If the project is not done according to the specifications, the customer can be compensated.
