A surety bond was previously what bail bonds were referred to, but they are now used to speak about guaranteed made by businesses and others that are in a legal and binding contract. It is a way to make promises of what is listed in the contract and agreeing to face penalties if you don’t do so. These give facts are important things to understand about a surety bond.
What is a Surety Bond
A surety bond is a promise that both parties will keep up their end of the agreement. It is usually an agreement that comes after a legal document or contract is signed. Both the project owner and contractor will need to sign the surety bond for it to be valid. It isn’t required for contracts but highly recommended because it acts as a promise for both parties. For example, if you are hiring a contractor to complete work on your home, the surety bond promises they will complete the work in a timely manner and you will pay them when requested.
Types of Surety Bonds
There isn’t just one type of surety bond you can have, but four different ones. They include the bid bond, payment bond, performance bond, and ancillary bond. The bid bond is for promising you will complete work and the other party will pay on time while the payment bond is only for the payment aspect. The performance bond is for work to be completed and the ancillary bond is outlined but other requirements of the contract, but not necessarily for performance or payment.
Why is a Surety Bond Important
When you’re signing over a contract, you would think it is enough to guarantee service or payment, but this isn’t always the case. The surety bond is an even more beneficial guarantee and can actually ensure you get work. If you’re a contractor, for instance, you can inform potential clients you have surety bonds signed on all work to be performed. This lets them know you’re serious about holding up your end of the deal. Also keep in mind that contracts valued at more than $150,000 will require a surety bond due to the high amount of work to be completed.
The SBA’s Role
Surety bonds are managed by the Small Business Administration (SBA) and they will play an important role in the bond process. The SBA is going to provide the bond guaranteed and help manage those that are signed. They want to form a partnership with businesses and contractors signing over surety bonds to be everything is succinct.
Surety Bond Guarantee Fees
Finally, keep in mind the SBA also charges a small fee for the management of surety bonds. The amount is 0.729% of the amount in the payment or performance surety bond contract. It is a way to further ensure both parties abide by the contract and the surety bond.