Surety bonds are likened to insurance except that it is focused mainly on business transactions that deal with high risk. A surety bond is usually provided by a third part to ensure that the transaction is legal and beneficial to both parties. There are typically 3 parties involved in surety bonds. The first is the principal who is responsible for delivering the services and products under the agreement. The principal is the party responsible in obtaining the bond as well. The obligee is the 2nd party involved. The obligee is the party that contracts the principal for a particular project or job in exchange for payment. The third party is the underwriting or escrow company who hold both parties to their responsibilities with each other. This third party must be objective to both parties. A surety bond will ensure that both parties receive what is due at the conclusion of the project.
- Look for an escrow or underwriting company. There are several ways you can go about to look for the perfect underwriting company suited for your needs. You can call your existing insurance agent or agency and inquire if they deal in surety bonds. You may ask for referrals or recommendations as well. You can check online for escrow companies that deal with bonds. Most reputable companies will have Internet presence by now. Some will even handle transaction through an online medium. Do a quick search on Google and you should find thousands of hits. Make sure to check the customer reviews of each prospective company. Check on relevant online forums as well. Short-list the prospective companies based on reputation and cost.
- Contact your short-list. Once you have finalized a short-list of companies dealing with surety bonds, start contacting them via email or phone. Some companies will have websites that offer free online quotes and consultation. In any case, the next step will be to choose the company with the best deal and reputation and talk with their surety bond agent. Get an accurate quote from them based on the project details. Make sure to inquire about the penal sum as well. The penal sum is the price charged to each party should they default on what was agreed upon. This will determine the risk and in effect the surety.
- Process your application. Once the details have been drafted and everything is amenable to both parties, apply for the surety bond. The surety bond agent will require information regarding both the principal and obligee. This will include credit history and business information. The agent will require the project details as well. This will include the timeline and scope of project. Depending on the agency, the application processing time can range from 24 to 72 hours.
- Pay the premium. Once the application has been processed and the rate received, you will now be required to start paying the premiums for the surety bond.
A surety bond is a safe way to ensure that a project gets done at the performance desired. It is a way to ensure payment is made to the service providing company as well. The surety bond is a must for large scale projects that amount to large sums of money. It has become a standard in modern business.