Do I need a surety bond?

It may seem strange for a surety bond broker to say this, but if you don’t have to get a bond then don’t. Why spend money on bond premium if you don’t have to? No one gets a surety bond because they want to. You get a surety bond because someone is requiring it of you to do some type of business or work for them or in their location.

Is someone requiring you to be bonded?

A surety bond is a three-party financial guarantee of performance between the Obligee (who’s requiring the bond), the Principal (who is required to get the bond) and the Surety (who is taking on the risk of the Principal’s performance). One state may require a surety bond to issue you a license you need while another state may not require a bond for the same type of license. There is no reason to post a license bond in the latter. A contractor may be required to post a bond if they want to submit a bid and win a construction job. If they want to do that job then you’ll have to get a bond, simply because the Obligee is requiring it.

Why would someone require a surety bond?

Everyone should do what they say they will do. Unfortunately, that doesn’t always happen. By requiring a bond, the Obligee has some financial protection against the principal not holding up their end of the bargain. If their do what they have promised to do, then all is well and nothing happens with the bond. If they don’t, the Obligee can make the Surety pay compensation up to the full bond amount, then leave settling up between the principal and the Surety, which is called indemnity. The Surety is willing to take on this risk in exchange for some premium based on a percentage of the bond amount.

Do you need to keep an existing bond?

If it’s a bond that supports an ongoing obligation, yes. For example, if a state gave you a license that requires a surety bond, then cancelling the bond or letting it expire will most likely cause the state to revoke your license. However, if it’s a bond for an obligation that has been fulfilled — such as a contractor job that has been completed — you should be able to get that bond released and no longer pay premiums for it. Whether or not you still need the bond is up to the Obligee.

If you think you may need a surety bond or someone has told you to get one, we would love to answer any questions regarding why it’s being required and what all is involved. Whether or not you get the bond from us, we’d be happy to help you make the most informed decision.

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