Surety bonds are contracts that are generally required by law. It is a different type of bond that provides insurance to the project owner. It is a three-way relationship agreement, which is taken to reduce the risk. The surety bonds offer safeguards to the obligee against any contractor misconduct. Surety bonds are often used by the construction industry. It offers several benefits to the project owner. The surety company agrees to grant surety bonds, only on payment of a percentage of premium. Usually, an applicant with good credit scores easily gets a surety bond, whereas an applicant with a bad credit rating struggles to get a surety bond. In simple words, a surety bond involves three parties and assures the project completion. It is undertaken because many of the contractors may fool the project owner by committing various cheating, which would result in a financial burden on the project owner. The surety company is liable to compensate the project owner, in case of any misconduct. Obligees are referred to as the project owners, whereas the principal is referred to as the contractors. The main intention of surety bonds is to ensure that the principal is complying with the applicable laws and regulations.

CATEGORIES OF SURETY BONDS

The surety bonds are purchased to fulfill the purpose of many professionals and businesses. The two general categories of surety bonds are Contract and Commercial bonds. A business will provide its presentation towards dedication to financial responsibilities and moral business practices by buying a surety bond. Surety bonds provide the best risk management product as compared to others. It creates economic growth by protecting small consumers, taxpayers, and workers. Bonds serve as a crucial risk management and public policy function, which leads to enabling innovation. Read more to explore the importance and benefits of surety bonds in various industries.

THE BENEFITS OF SURETY BONDS

The industry of construction is filled with various risks. To overcome such risks, bonds are purchased. The surety bonds provide vital safeguards and services required to assist the infrastructure industry. It provides eventuality planning in the event of principal default. The purchase of surety bonds leads to increased innovation and ensures timely payment to workers. It also ensures that the construction is completed within the given time. Surety bonds protect tax dollars while encouraging economic growth.

WHY SURETY BONDS ARE AN ESSENTIAL RISK MANAGEMENT TOOL?

Surety bonds are essential because they offer various types of protection to their clients. It protects regulatory compliance, working capital needs, monetary and cost-effectiveness. The surety companies are required to provide services so that their obligations are properly met.

CONCLUSION

Surety bonds are mainly used in the industry of constructions. The main motive of surety bonds is to provide safeguards to the customer and enhance economic growth.