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Frequently Asked Questions


A surety bond is a legally binding contract that ensures obligations are met — or in the case of failure, that recompense will be paid to cover the missed obligations.

A surety (bonding) company is typically also an insurance company that provides the guarantee for the payment, performance, or compliance this is being required. Both surety bond agents and surety bond companies are licensed and governed by state and federal insurance regulations and authorities.

Also known as a “producer”, surety bond agents represent various surety bond companies as an attorney in fact and provide the surety’s sales and client servicing functions. Surety bond agents must have an active insurance license in the state where doing business.

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An underwriter is an employee of the surety company and they work directly with the surety agent to consider and approve surety bond requests.

The principal is the business, contractor or individual that is required to post the surety bond. This party is responsible for performing, paying, or complying with the requirements guaranteed by the surety bond.

The obligee is the party that is requiring the surety bond. Typically this is a federal, state, or local municipality that receives the benefit of assurance provided by the conditions of the surety bond.

Surety bonds are a business’ way of reassuring customers that they stand behind their promises—and if they don’t, consumers will be protected.

Surety bonds are required by many municipalities, construction contracts, court proceedings, and others. Specific industries are required by the law to have bonds to protect consumers. In some cases, a bond is required before a business license will be issued. Bonds are regulated by national, state, and local laws.

  • A bid bond provides financial assurance that a bid has been submitted in good faith and that the contractor will enter into the contract at the price bid and provide the required performance bond and payment bond.
  • A performance bond protects the owner from financial loss, should the contractor fail to perform the contract in accordance with its terms and conditions and completion timeframe – also provides one year of warranty protection.
  • A payment bond guarantees that the contractor will pay subcontractors, laborers and suppliers associated with the project.
  • A commercial bond is used between three parties: the principal, obligee and surety entity. It provides a line of credit that acts as a financial guarantee to allow the obligee to claim against the bond. It is required by governmental entities to protect public interests.

This depends greatly on the type and size of the bond needed. On the smallest bond commitments, the business owner’s good personal credit will suffice. On larger bond commitments 3 years of CPA audited financial statements and other supplemental financial data can be required.

Bond cost varies greatly; it is dependent on bond type, the applicant’s credit history / financial position, and the location where the bond is needed. For an applicant with an excellent credit history, the cost is usually between 1% and 3% of the total bond amount needed.


A GIA, is a contract between the surety company and the contractor and its owners in which the indemnitors agree to repay the surety for any loss it may incur as a result of the contractor's failure to perform.

This can vary by bond type and amount, but the underwriting period can take from as little as an hour to over several months on complex transactions.

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