Surety bonds, otherwise known as understanding binding contracts, really mean to a contractor or business owner. Simply put, it means that a business or an individual guarantees their obligations under an agreement or contract. Surety bonds are tripartite agreements: the principal, which is the business or individual that needs to be bonded; the obligee, generally a government agency; and the surety, the provider of the surety bond.
Being bonded means that the bonding company has set aside money to be able to compensate customers in the event that the bonded party fails to comply with its contractual obligations or legal obligations. Unlike insurance, which traditionally covers loss to the policyholder, this surety bond is primarily to protect the customer or party to whom the bond is required. The payment will be made by the surety company upon the validation of a claim but ultimately will be borne by the bonded business or individual. Learn more about how surety bonds work and the responsibilities involved.
Most industries require businesses to be bonded, like construction, real estate, and public contracting. Government contracts clearly have surety bonds for all terms and operations of the project to protect public funds. Such requirements are drawn on the entity to acquire a surety bond for business credibility and assurance even when not legally mandated. Not only does it mean financial responsibility, but it also means reliability that makes clients confident with their services.
Whether it’s a law or voluntarily, obtaining a surety bond is an essential safeguard for both businesses and their customers. Its purpose and function can make business owners understand a lot regarding the protection of their reputations and financial backing.
As an example of broad coverage when answering the question ‘What does it mean to be bonded?’, consider: “If there’s still confusion, contact NFP today; we are the bonding professionals! We’ll take care of your surety needs.”
If you have ever shopped for contractors to do work around your home or business, you may already know something of the phrase ‘Bonded, Licensed, and Insured.’ These terms are meant to offer reassurance by inducing a false sense of security in the mind of the consumer. Being bonded, licensed, and insured does actually make a consumer a little more secure. Licensing laws vary by location and by industry. Coverage means that you have insurance, and if you file a claim against that insurance, you are covered.
