What is a Commercial Surety Bond? A commercial surety bond is an agreement between two parties. An obligee (usually a business) obtains a surety bond which guarantees that obligees performance of contractual obligations. The obligor (usually a borrower) posts a payment as assurance or proof of good faith, until such time as it is needed in the event that the obligee fails to live up to its obligations. The most important thing to understand about commercial surety bonds is that they exist to protect the customer, but they are not optional. Companies who don't obey the law and provide proper coverage for their customers risk being shut down. Although you might think of your business as trustworthy, if you ignore this financial responsibility, you could find yourself in serious trouble with your customers and even with the law.
Companies that have successfully completed the surety process are more likely to complete projects on time and on budget. As a subcontractor, you can rest easy knowing there is a back up plan if the construction company doesn't come through. If a bonded company goes bankrupt, has delays or falls behind schedule, the surety will be affected by it. They have paid more up front and therefore take losses in the future. The final outcome will be a recovery, they will be paid out of the bond that was posted in the beginning, which is why there is an upfront fee. For more detail, please refer to the info-graphic below.
