Surety Bonds are required by businesses in order to bid, quality, or execute a certain project. In Canada, it is common for construction companies, travel agencies, warehouses, and exporters to obtain a surety bond. Below you will read about what exactly a surety bond is and who is involved in a surety contract.
Surety Bonds is a type of contract between three parties.
The three parties are:
1. Principle – Person who owns a business that purchases the bonds for their work.
2. Oblige – are the entity that require the bonds from the principle. They normally are government agencies.
3. Surety – is the insurance company that provides the company with the bonds.
The surety guarantees the oblige that the principle will follow the terms of the bond. If the principle does not follow the terms and condition of the bond, the oblige could claim to recover there loses. The surety company might have to pay some of it of the bond as well.
Who needs it?
Surety Bonds are required by businesses and professional who provide services to consumers. There are two different types of bonding categories, commercial bonds and contract bonds.
1. Commercial bonds are used for business owners, entrepreneurs and other working professionals. Commercial bonds ensure that people will do there job according to licensing laws and others rules and regulations. For example: auto dealers, travel agents and more.
2. Contract Bonds are used to guaranty construction professionals that they must follow the rules when they work on a construction project. They ensure that project will complete on time and that help them lose any investments.
Cost of a surety bond?
The Surety bonds are dependent on three factors:
1. Credit score
2. Companies financial
3. The project price
For Businesses, Surety companies do not want to give bonds to someone with bad financial loss for their company. They surety company asks for the business owners personal credit score because credit provides and indication of the person ability to pay their debts on time. Someone with a bad credit could also get the approval by the surety company but the only difference is that the price for them may be higher then with someone with a good credit.