Surety Bonds: Investments that Protect Investments

Editor’s note: This is a guest post from Chris Foley of

Anybody who contributes their time, effort, and, of course, finances to a project feels more confident about the decision if the commitment can somehow be assured. When it comes to finances – whether personal or corporate – surety bonds provide this guarantee. Most industries in America utilize surety bonds to provide protection for those investing in business deals, as well as those who might be vulnerable after a contractual agreement has been made.

Surety Bond Basics

Surety bonds essentially work as a legal contract between three parties:

1. The Principal: the entity required to purchase the bond to guarantee the quality of work to be done

2. The Obligee: the entity that requires the bond to protect its interests

3. The Surety: the agency that issues the bond to the principal and assures the obligee with a financial guarantee

The bond is written to assure the obligee that the principal will fulfill all duties appropriately, whether developing construction projects, collecting debts, or signing official documents as a notary. If the principal fails to uphold the guarantee outlined in the bond’s language, then the obligee can make a claim on the bond. If the principal is unable to compensate the obligee, the surety will be held accountable for reparation, whether achieved financially or otherwise.

Although bonds may sound similar to insurance policies, they are completely separate entities that serve different purposes. Insurance policies provide retroactive compensation for situations gone awry. Conversely, bonds provide a kind of preventative credit by encouraging principals to make appropriate, professional decisions. This is why the application process for bonds is so thorough. Many surety specialists avoid putting themselves at risk by working exclusively with financially-sound clients.

Work with Bonded Professionals

If you have somebody handling your finances, one of the easiest ways to determine their reliability is to check for their bonded status. Depending on the specific jurisdiction in which you live, mortgage brokers, bankers, and lenders may be required to be bonded. Real estate agents, tax collectors, and money transmitters also typically need to purchase a bond before they start working with clients. If you find out there aren’t bonding regulations in place for a specific profession, you can still inquire into the bonded status of the individual, as reputable professionals secure a bond to protect their consumers and clients even when necessary.

Getting a Surety Bond

Because so many professionals are unaware of bonding regulations and requirements, some may be unprepared for the additional funds needed for the process. Although bonding fees are relatively inexpensive considering the amount of protection provided, the unexpected cost might concern some professionals. The surety provider will charge a fee based on a thorough examination of the applicant’s credit and financial history. By issuing the applicant a bond, the surety establishes the professional as reliable and financially stable.If you’re a professional who works in the finance industry, you should consider getting bonding to offer additional protection to your clients. To determine what kind of surety bond would best serve your needs, check with federal, state, and local regulations, as specific bonding regulations typically differ for most jurisdictions. For example, a required surety bond in California may not be necessary in another state, or, if it is, the required penal sum could be for a different amount.Although the bonding process might seem a bit overwhelming at first, surety bonds provide an irreplaceable guarantee. Getting a surety bond requires an investment on both the part of the principal and the surety, and once issued offer valuable protection for investments made by the obligee.

About the Author: Chris Foley works for, an agency that offers over 25,000 surety bond types to businesses and professionals in all 50 states. Through their Surety Bonds Education Program the company works to spread their knowledge of surety bond regulations and the bonding process in a wide array of industries.

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