A surety bond is a contract between three parties that a job will be completed and meet an agreed-upon quality standard. The obligee requires the principal to buy the bond from a surety company. The bond guarantees that the principal will act in accordance with the terms of the agreement. The bond will cover any losses and damages, plus legal fees, if the principal fails to meet the terms of the agreement. In other words, a surety bond is like insurance for the obligee that is paid for by the principal. If the principal breaks the terms, the obligee can make a claim to recoup their losses.

Often, the obligee is a government agency that asks for the bond to protect the public. Principals are typically business owners who want to bid on a job or provide a product or service. Surety bonds are most often required in the construction industry, especially for contractors bidding on large public projects. However, there are other industries that rely on these agreements.

In Georgia, a nonrefundable surety bond is also required to obtain your mortgage broker or lender’s license. It serves as a guarantee that you will abide by the applicable laws. This agreement is also generally required of businesses to obtain contractor’s licenses. Courts can require a surety bond for many reasons, such as in an appeal of a civil court verdict, to ensure the judgment is paid in full if the appeal fails. 

Working with a professional bondsman can help you navigate what agreement, if any, is required for your work. If you buy the wrong one, it will be rejected by the obligee, so you’ll want to consult with an agent before purchasing. A bond agent can also help you understand what product or service you are agreeing to provide. These documents are often written in dense legal language, so it’s in your best interest to consult with your agent to make sure your business can provide the product or service requested by the obligee.

As the principal, you may be asking yourself if there’s an alternative to buying a surety bond. In some cases, you may be able to put up cash as collateral. However, this leaves you without the surety company’s protection if a false claim is filed against you. Lessening your hold on a substantial amount of capital may also increase your chances of going bankrupt or defaulting on a contract. In most cases, a surety bond protects not just the obligee, but also the principal.

Godfrey Bonding of Canton, GA, provides bonding services across Cherokee County. Whether you need a surety bond for a construction project or your consumer business, call (770) 479-5230 for a free consultation. You can also visit their website to learn more about their services.