What is a Surety Bond?


A surety bond is a form of insurance that specifically applies to business contracts and the requirements of each party to fulfill the contract terms. The surety can be applied to several components of a contract and can be directed at either party in the agreement. A surety is effectively a financial guarantee that a third party will issue payments for a specific part of contract to be completed properly and on time. In some instances, the surety company also has the option to find an alternate contractor to complete the partially completed work of the original contractor.

Types of Surety Bond

There are effectively four types of surety coverage available on the market. One type of bond covers contract bids and usually covers the initial establishment of the contract and that the contractor can provide the necessary stipulations of a contract. A performance bond ensures that the work will be completed according to contract specifications on a timely basis. A payment bond is designed to ensure that payments are made to subcontractors and suppliers who are to perform certain work according to a contract. Ancillary bonds normally cover aspects of a contract that are not directly related to work performance and payment for services.

When Do I Need Surety Protection?

While commercial bonds are available for small simple agreements between two parties, there are many instances where surety insurance is a requirement for contract completion. This is especially true when contractors are required to deliver a project for the federal government, as any contract in excess of $150,000 will always require a surety arrangement of some type. This is actually an excellent form of additional coverage for any project of even a moderate financial amount because it is in place to financially protect all contracting parties.

Can the SBA Help?

Sometimes a small business cannot qualify and will need some form of additional guarantee that the contract can be fulfilled. The Small Business Administration Office of Surety Guarantees can then provide additional assurance of protection for contracts up to $6.5 million, and sometimes up to $10 million when the government can qualify the small business for additional coverage. There is a small additional fee, but SBA assistance is not uncommon.

If you are in need of any form of surety insurance contact Hale & Associates Surety Company and let them evaluate your contract situation need for any protection available.