How surety bonds work

If a business deal goes bad, the implications can be significant. A surety bond provides assurance that what was agreed gets delivered.

A surety bond offers a guarantee from a third party to a beneficiary, that an agreed sum of money will be payable to the beneficiary in the event that a company fails to deliver on its contractual obligations.

It provides protection against unforeseen financial challenges and can safeguard contracts from insecurity and risk.

Surety bonds use a guarantor to offer financial securities for work to be carried out and provide an alternative to bank guarantees or letters of credit.

Types of surety bonds

There are two types of surety bond available.

1. Contract bonds: these secure performance and contract related obligations without the need to provide financial or collateral-based security.
2. Commercial bonds: they cover other types of bond that fall outside the scope of contract bonds.

Surety bonds can be used for assurance in projects, terms of commercial licences or permits and to guarantee payments.