Whether you are a construction contractor or a real-estate agent, you know that there are quite a lot of hassles when obtaining permits, licenses or legal documents.
On top of all this, there are surety bonds that have become a mandatory part of many operations. They not only make your customers trust you more, but also ensure that they do not suffer from any financial consequences.
Surety bonds can be quite confusing, leaving many unanswered questions in purchasers’ minds.
We at BondPro try to ward off some misconceptions regarding surety bonds. Read on:
Surety Bond Is another Name for Insurance
This is one of the most common misconceptions regarding surety bonds. Although both have been designed to protect interests of the parties involved, there are quite a few essential differences.
- In insurance, the burden of risk lies with the insurance company.
- With a surety bond, the burden of risk lies with the principal or the person who purchased the bond.
- If the principal is at default, the surety company pays for the financial loss of the customer and then collects their costs from the principal.
Performance Bonds and Payment Bonds Are the Same
Both performance bonds and payments bonds are parts of a Contract bond and have to be acquired together, but they are quite different:
- The payment bond guarantees that the principal pays for all material and labor costs for the performance of the contract.
- The performance bond is a guarantee that the project will be carried out according to exact specifications in the contract.
Surety Bonds Acquired From One State Will Do Just Fine for Other States
Each state in the United States has its own governing body and laws. Similarly, the surety bond regulations also vary from state to state.
Before getting a surety bond, it is important that you learn about your state’s laws and regulations. For this, you can work with a reliable surety bond agent.
Surety Bonds Require Monthly Payments
Again, a surety bond is not like insurance. Contract bond premiums are based on the total contract price paid to the Principal. License, Permit, Miscellaneous and Court bonds have annual premiums.
Surety Bonds Are Only Useful for Large-Scale Operations
Although it becomes a necessity for a large company to gain the surety bond, small companies and businesses also require surety bonds, depending on their services. Having a surety bond helps them thrive as it gives them a reputable status.
We at BondPro are an online bond agent/broker based in Oklahoma. We provide surety bonds to businesses in all states. With access to multiple bond markets, we provide reasonable rates to our clients. Contact us to know more.