Surety Bonds

Surety Bonds – a Crucial, Often Forgotten Tool for Entrepreneurs

Entrepreneurs have a lot on their plate as they prepare to start up a new enterprise. To help stay organized, it can be helpful to run through a checklist of essential tasks that must be completed before a business can open. Considerations vary widely, from where exactly to set up shop to which bank to trust with the company’s finances.
All too often there’s one important consideration that gets overlooked — the need for surety bonds. These risk mitigation tools are usually required by government agencies looking to protect the best interests of consumers. Some bonds, however, work to protect business owners, which can be especially beneficial for small business owners.

So what is a surety bond, anyway?
At its core, a surety bond is a legally binding contract that financially guarantees the performance of an individual or a business. Each surety bond that’s executed binds three entities together.
• The principal is the professional or business that purchases the bond to guarantee the quality of work to be done in the future.
• The obligee is the entity that requires certain professionals and businesses to get bonded. Obligees are usually government agencies working to regulate an industry.
• The surety is the company that sells the bond to the principal, thus providing a financial guarantee that the professional or business will follow all necessary rules outlined in the bond’s language.
What kind of protection do surety bonds provide?
There are thousands of surety bond types out there, and each one offers a unique kind of protection. Generally, though, surety bonds provide financial and legal insulation to protect consumers from unreliable professionals and businesses. Surety bonds provide a guarantee that an individual or an entity will fulfill its contractual obligations or other professional duties according to laws and regulations. In this way they provide the public with financial protection against poorly run businesses.