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Basics to Know About the Different Types of Commercial Surety Bond

Local and state governments use commercial bonds to regulate safe and free commerce flow. If they wish to conduct a business, contractors need to obtain these bonds before receiving a license. With this bond, the business owner enters into a contract and agrees to follow regulations while doing their business. If they fail to do so, and if it leads to any damage to the customer, they get the legal right to file a claim against the contractor and ask for compensation.

In this way, a commercial surety bond makes the business accountable for their behavior and prevents them from violating laws. Whether you are a private company, an institution, a dealer, or a contractor, you need to get a bond immediately to get your license fast and avoid any delays.

There are different types of commercial surety bonds meant for different types of services. Here are some of them:

Surety Bond Jigsaw Puzzle


Court Bond

Also known as the judicial surety bond, court bonds are meant to protect a business or person from potential loss during court proceedings. Defendants and plaintiffs commonly use these bonds in court. There are two significant types of court bonds:

  • Defendant bonds: Appeal bonds, bail bonds, and other types of defendant bonds are meant to block claim satisfaction for the plaintiff.
  • Plaintiff bonds: Plaintiffs often require these bonds to ensure financial protection to the defendant if the plaintiff loses the case. In this bond, the plaintiff is held responsible for damage caused to the defendant because of the court proceeding.

Some of the common types of court surety bonds include cost bond, appeal bond, injunction bond, administrator bond, guardianship bond, attachment bond, etc. A court surety bond can be 1-4 years long, or until the length of the court proceeding.

License and Permit Bond

If you are looking forward to applying for a license to conduct your business, the government organization will need you to provide a license and permit bond. This type of commercial bond is designed to keep public interests safeguarded against professionals who fail to follow the rules and regulations while conducting their business.

Non-resident professionals, contractors, plumbers, and electricians most commonly need this type of construction bond. It is the government agency that sets fines and penalties for breaking laws as specific to your profession.

Wage and Welfare Bond

Just like any other commercial surety bond, a wage and welfare bond also functions as a contract between three entities:

  1. Principal: The business that is employing the union members
  2. Obligee: The union that needs a bond to protect its employees’ rights
  3. Surety: The underwriter who issues the bond

Unions need wage and welfare bonds while negotiating with companies for collective agreements. With this bond, the employer guarantees due payments to the union, contributions to the funds, and benefits packages to the union employees as promised. If a company fails to keep up to its obligations as per the terms mentioned in the bond, then the bone money is used for paying off claims for wages, salaries, service compensations, and fringe benefits. Each wage and welfare bond is drafted uniquely for different unions.

Notary Bond

A notary bond is a commercial bond that many states require to guarantee a notary performance ethically and lawfully. In case the notary fails to do their duty, the state or the harmed party can file a claim against them. Once the claim is proved valid, the bond amount is reimbursed to the harmed party. As a result, both the consumers and the state are protected against financial loss with a notary bond.

How do Commercial Surety Bonds Handle Claims?

Whichever type of commercial surety bond you have, when a party makes a claim, the surety carries out a complete investigation and verifies that it is a valid claim. Then the surety pays a claim settlement amount to the obligee within the maximum bond amount. Finally, they try to collect that amount and the fee and interest from the principal. In any case, even if the surety honors the claims on behalf of the principal, it never takes the financial burden for the claims and gets the money back in one way or the other.

There are different types of commercial surety bonds, each used to protect the obligee from any distrustful practices from the principal. Some bonds are a requirement, while others are good ideas to win business. Depending on your business’s nature, you have to select the bond as per your requirements and obligations. So, choose a provider that delivers all of these bond types under one roof.

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