When you need to buy a surety bond, it is important to know who the principal is. The principal is the person or company who is responsible for meeting the terms of the bond. If they fail to do so, the surety company will be liable. In this blog post, we will discuss what a surety bond is and who the principal is about it. We will also explain why it is important to know this information.
What name goes on a surety bond?
Typically, a surety bond is written with the name of the person or organization being bonded, also known as the obligee, in the title. This obligee is usually a governmental body that requires a bond to be posted to conduct business. The name entered on the surety bond will most likely be either the legal name of an individual or a business entity.
Who is the principal in a surety bond?
The principal in a surety bond is the party that requires the bond—typically referred to as the obligee. The obligee can be an individual, like a landlord; or it can be a government agency, such as the Internal Revenue Service (IRS). In any case, the obligee is responsible for enforcing the surety bond agreement and is typically the beneficiary of the bond.
How does a surety bond work?
A surety bond is a three-party agreement between an obligee, a principal, and the surety (the bonding company). The obligee requires that the principal purchase the bond as assurance that they will fulfill the obligations stated in their contract. If there is a breach of contract or any other violation, then the surety can be called upon to provide compensation to the obligee up to the full amount of the bond. The principal is then financially responsible for any damages awarded, including reimbursing the surety for any funds paid out.
Do principals need good credit to obtain a surety bond?
The answer to this question depends on the type of surety bond being obtained and the principal’s overall financial situation. Generally speaking, a principal with good credit will likely have an easier time obtaining any surety bond or contract performance bond compared to one who has bad credit. That being said, if the amount of money required for a bond is not significant, then a principal with bad credit may still be able to obtain the bond. It all comes down to the individual situation and assessing the amount of risk the surety company is willing to take on by issuing the bond.
How do surety bonds benefit the principal?
Surety bonds offer several advantages to principals. This type of bond provides financial protection and peace of mind that the work or services will be completed as agreed upon. Surety bonds are also a form of insurance that helps protect against any losses incurred due to non-performance. Additionally, having surety bonds in place can help create trust and credibility for the principal, as it demonstrates to customers that they are financially secure and reliable.
Where does the principal go to obtain a surety bond?
A surety bond can be obtained through a surety company or an insurance agency. Depending on the type of bond required, there are a variety of companies that specialize in providing this service to meet the needs of the principal. The surety company will evaluate the credit rating of the principal and any other financial information necessary before agreeing to provide a bond.
What industries require a surety bond?
Surety bonds are often required in a wide range of industries, such as construction and contracting, motor vehicle licensing, retail, finance, and insurance. Each industry has its specific type of bond to assure all involved parties. In the construction industry, contractors may be required to obtain a performance bond or a payment bond, which assures that the contractor will fulfill their contractual obligations. For motor vehicle licensing, dealers may be required to purchase a garage keeper’s liability bond or franchise tax bond. Retailers may need to get an inventory tax bond, while finance and insurance companies often require fidelity bonds.
How much does a surety bond cost?
Surety bonds are priced based on the amount of risk they cover, as well as the creditworthiness of the principal. Generally speaking, surety bond costs range from 1-15% of the total bond amount, with lower rates typically assigned to higher-credit principals. Surety bonds can also provide various other benefits to the principal along with protection from potential losses.
A surety bond claim against the principal?
To pursue a surety bond claim against the principal, the obligee must file a claim form with the surety. This should include details of the claim, such as any breach of contract or default on payments due. The obligee must also provide evidence that shows damages suffered as a result of the alleged breach. Once the surety has received and processed the claim, it will investigate and determine whether or not to indemnify the obligee for any losses incurred. If the surety finds in favor of the obligee, it will provide compensation up to the limit of the bond amount.