A commercial surety is a unique kind of insurance product that is designed to ensure that certain business owners follow the law. Local and federal laws are in place to protect the public from physical injury and financial losses that could occur as a result of the business’s actions. Commercial sureties are often required by law as well.
A bond works like this. A business or individual, called a principal, purchases a bond. This guarantees that they will follow the terms of the bond. A commercial surety is usually required by law, so in this case, the obligee is the law or government agency associated with regulation. The bond is purchased from an insurance company, called a surety. If the principal fails to follow the terms of the bond, the surety will pay the obligee.
Commercial sureties are also called commercial bonds. They are not associated with contract bonds, and are sometimes referred to as ‘non-contract’ surety bonds. Most surety bonds fit into one of four categories, but several kinds of commercial surety bonds exist.
- A License and Permit Bond – Usually, these are required by law. Varying kinds of license and permit bonds exist.
- A Disciplinary Bond – These are also required by law, usually when a licensed contractor has already had a disciplinary action taken against them. It provides additional protection from someone who is on a second chance.
- A Wage and Welfare Bond – A union might take this bond out to ensure that union dues are paid even if a member fails to pay.
Who Needs a Commercial Surety? Why?
Commercial surety bonds are usually required by law. Usually, they’re required for construction firms who wish to bid on a public construction contract, and sometimes they’re required to bid on a private contract too. Some manufacturing and supply work contracts also require a commercial surety bond.
Specifically, any federally funded construction contract worth $150,000 or more will require a commercial surety to bid.
Commercial sureties are required to bid because they guarantee that the bond purchaser will fulfill a financial obligation, should one arise. If the bond purchaser fails to follow certain state, local, or federal laws, the bond acts as a line of credit to cover the costs associated with breaking the terms of the bond.
Looking for a Commercial Surety?
If your construction company is in need of a commercial surety in order to make a bid, you have come to the right place. Take a look at the sureties we offer and contact us today.