What Every Contractor Needs to Know About Surety Bonds

When a contractor starts up a business, there are many details that have to be sorted out in advance. If a new business owner skips one or two important items, they increase the risk of a failure down the line. The Small Business Administration has many different programs available for new and emerging businesses. One of the best programs for contractors covers Contractor Bonds.

Surety Bonds: A Definition

Homeowners and businesses who require the services of a contractor on their properties hire contractors who have a surety bond in place. Should the contractor not be able to complete the project for one reason or another, the surety bond kicks to make sure that the work is completed as promised. The contractor is known as the principal in the surety business while the property owner is referred to as the obligee. Before the work begins, the contractor works with a surety company to obtain a surety bond. This bond guarantees to the obligee that if the work is not completed by the original principal, the surety company will either compensate the property owner or hire a different contractor to finish the job.


Contractors should understand the different types of surety bonds available. There are four of them and each has a different purpose. These are:

Payment Bond: With this bond, all subcontractors and suppliers are guaranteed that they will be reimbursed for materials and labor. With this guarantee, the obligee is assured that work will not stop if there is a cash flow problem.

Performance Bond: Both the conditions and terms of the contract are guaranteed with this type of bond.

Bid Bond: This bond is in place when the contractor makes a bid on a job. It provides insurance to the property owner that when the contractor is given the contract to do the job, that contractor will purchase both payment and performance bonds and enter into the contract to complete the work.

Ancillary Bond: This bond covers all requirements that are not directly related to performance.

In order to get good contracts, the ability to get surety bonds and pay for them is vital. For government jobs in excess of a stated amount, surety bonds are a necessity.

How To Purchase a Surety Bond

The Small Business Administration has a program through its Office of Surety Guarantees. This program works with both the contractors and the surety companies to help new businesses get the bonds that they require for success. Companies such as Click Here will literally do the shopping for their clients to find good coverage at excellent rates. When contractors have a choice of bond companies, they have the opportunity to be well-matched with a bond company and get exactly what they need in order to get the contract landed. Additionally, this type of service works with new businesses that are in unfamiliar territory to help them correctly fill out their paperwork in order to qualify for a bond.

For more information, visit the website at http://contractorbondquote.com/.


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