Surety bonds are three-party agreements where the issuer of the bond (the surety) joins with the second party (the principal) in guaranteeing to a third party (the obligee) the fulfillment of an obligation on the part of the principal.

Obligee: The party (person, corporation, or government agency) to whom a bond is given. The obligee is also the party protected by the bond against loss.

Principal: The individual who is required to be bonded by the obligee.

Surety: A person or institution that guarantees the acts of another person or institution.

A commonly asked question about Surety Bonds is the cost.  This is a difficult question to answer because surety bond premiums vary from one surety to another.  A surety bond premium can range from half of one percent to two percent of the contract amount.  This is based on size, type, credit, and duration of the project.

Some bonds consist of several different bonds put together.  A performance bond can include payment bonds and maintenance bonds. Typically, these bonds are priced based on the value of the contract being bonded, and not the size of the bond. If the contract amount changes, the premium adjusts to reflect the change.

It is the contractor’s responsibility to obtain the bond when the bonds are specified in a contract. The contractor usually figures the bond premium into the bid amount. This premium is typically payable upon execution of the bond.

Commercial bonds have a greater range of pricing, and high-risk bonds require 10% collateral along with a higher premium.

There could be a waiting period to obtain a surety bond. There are a variety of factors, such as the underwriters at the bonding company; they can bog down this process. So doing your research will help to improve this period.  While some bonds are approved immediately, others can take from one to four business days. After approval, the bonds issuance typically occurs about one to two days after receipt of payment (and any other documents required by the surety for release of bond).

How would one obtain a Surety Bond?  This is actually the easiest part of understanding a surety bond.  There are so many sites on the internet that will give you more information on the different kinds of bonds as well as were and how to purchase one.  So do the research and learn about this product before you commit your self.  You will be glad you did.