Surety Bonds: What They Are and Why Your Business Needs Them

You can begin thinking about the function, use, and risk of surety bonds by examining a typical loan scenario. Consider that you’ve opted for a financing option at your local car dealership. Perhaps you’re on the younger side, or perhaps you’re just making what is for you a relatively large purchase. The auto-dealer will only grant you that perfect two-year financing plan with the introduction of a co-signer or guarantor on the contract. You agree, and then ask your spouse or a parent or a friend to co-sign—and the auto company approves what is essentially a loan, to be paid back over the previously established two-year period.

In signing, you have become the “principal,” your co-signer the “guarantor,” and the auto company the “oblige.” A surety bond works similarly—where a surety (guarantor), legally vows to pay the obligee a certain amount if the principal defaults on their payment or otherwise fails to meet some other contractually binding obligation. The surety is essentially proof of the principal’s insurance against failure to fulfill pecuniary duties to the obligee.

Another way of conceiving of surety bonds is by putting them in terms of credit—if credit is understood in its literal, and etymological sense: to trust. That is, the surety bond ensures that the obligee can trust the principal.


Does Your Business Need Surety Bonding?

This is just one example of a unique use for surety bonds, available at several locations in and around Edmonton. Issuance and reception of surety bonds is particularly relevant, not to mention prudent, depending on the type of business in which you are engaged. If you’re starting up, be sure you are not legally required to have surety bonding. Regardless of a business’s obligation to have a surety, it may be worth it.


Types of Bonds, Types of Businesses

Another type of surety bond available to businesses and corporations is the business service bond. There are two main reasons why this form of bond may suit the needs and goals of your company. For one thing, a business service bond is a surety bond that protects a bonded entity’s client (the bonded entity being your business) from potential theft or negligence causing damage. If your business offers services along the lines of janitorial work, home healthcare, contracting and construction, or any other business type that offers services where employees regularly enter onto a client’s property, then a business service bond could help cover potential losses incurred through your business’s employees.

However, no one enjoys thinking that someone who they have employed to help maintain their thoughtfully orchestrated business is partial to theft. Most likely, as the owner of your business, you’ve made considered work of hiring, and a loss incurred in such a way would not happen. That said, aside from the potential aid a business surety bond could provide in the case of such undesirable circumstances as just described, the surety bond will also increase the comfort level and trust of clients—along with the confidence insurers are willing to extend to your business.

Having such a vote of confidence from others makes for a more confident, and more competitive business.

Contact Sadler today for your fidelity bonds, license and permit bond and contract bonds, including prepaid, bid and performance bonds.