What is a surety bond and how it helps the Construction Industry

What is a surety bond is a common question for construction projects. There are two main categories of surety bonds. One is classified as a contract bond and relates to specific contractual obligations being performed such as maintenance or repair. The second classification is for commercial bonds such as licenses and permits. General contractors provide an obligee with a bond that ensures completion of the project. Additional aspects of Performance Surety Bonds include providing financial backing for necessary project functions such as supply material and subcontractor work.

In the event things do not proceed as planned, the principal turns to a Performance bond company for assistance. At this point, a company such as Viking Bond Service, Inc. steps in to assess the situation and decide the next step. A financial payment is extended to the obligee on behalf of the general contractors. Once funds have been distributed, the surety bond company turns to the general contractor for reimbursement. This may include legal fees associated with the cancellation or interruption of project work.

The application process with a Surety Bond company is fairly simple. Required documentation depends on what size bond an individual is seeking. Small scale bonds for amounts under $25,000 can be obtained with the submission of an application and a credit check. A premium for up to one year of coverage is given and once paid; the contractor is in receipt of bond services. For larger size bond requirements up to $250,000 the process is a bit more involved. In addition to an application and credit check, the contractor must also provide financial statements and verification of assets and cash listed on the application.

Each surety bond is assessed a bond premium rate based on things such as geographical project location, type of bond being issued and the total cost of a project. Risk factors are assessed in much the same way as a personal auto or home owner insurance policy. Greater geographical project locations and project requirements will see a higher premium rate. Once a bond premium amount is obtained and paid for, general contractors typically have coverage for a one year period.

Ensure that a prospective company is a nationally licensed surety bond company. Check online resources at www.performancesuretybonds.com to find out various types of surety bonds available and related requirements for each. Bond programs are available for good and bad credit respectively.