A surety bond is a contract between three parties: the principal, the surety, and the obligee. It is a promise to be held responsible for the debt, default, or failure of another to perform a contractual duty. The surety bond demands that the surety, also known as a guarantor, pays an agreed sum of money to the obligee if the principal is unable to perform a contractual obligation.
How to Get a Surety Bond
The surety bond process can be confusing, bulky, and complicated if one doesn’t know the right steps that need to be taken to acquire one. People often have little or no idea as to what a surety bond is, why one may be needed, how to get one, and the costs involved.
The following are simple steps that can be taken to acquire a surety bond:
- Determine the Type and Amount of Bond You Need:
There are different types of bonds, including corporate bonds, municipal bonds, agency bonds, savings bonds, and so on. These bonds have different applications, depending on the circumstances surrounding the agreement and even the location of the parties involved. Each state has its own peculiar requirements for bonds. Therefore, check for the bonds common in your area and their requirements.
- Gather Necessary Information Before Applying for a Surety Bond:
Every detail needed on the parties involved should be gathered in advance and then verified for accuracy. Some of the information required may include financial statements, tax ID information, references, addresses, names, license numbers, ownership information, personal credit scores, and others, depending on the type of bond selected.
- Apply for a Quote:
Consult with experts on surety bonds who can help you determine a quote for the bond you wish to purchase.
- Buy the Bond:
There are several options as to where to buy a bond. A bond can be purchased from a broker, directly from the U.S government, or through an exchange-traded fund. However, you must watch out for certain things while buying a bond. The first is to check whether the borrower is capable of paying the bonds. This is important because if a company or individual can’t return the amount lent, then there is no purpose behind buying the bond. It is also important to consider if it is the right time to buy the bond and how well it can benefit your portfolio.
- File Your Surety Bond with the Obligee:
Before a bond can be filed, it has to be sealed. The obligee will determine whether they require a raised or digital seal. After this has been determined, the principal should sign the bond and submit it to the obligee.
A surety bond is not an insurance policy and should not be handled as one. For all your insurance coverage needs, contact our experts at First Insurance Solutions today!