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What Is a Surety Bond? Types of Surety Bonds and How They Work?

Posted on the 25 October 2021 by Gaurav Kumar @vhowtodo
Do you know what a surety bond is? How do surety Bonds work? What are the different types of Surety Bonds? How much do surety bonds cost? Today, you will learn everything about Surety Bonds.
Surety Bond is a bond signed by a different party who becomes liable for the debt taken by the first party if the first party fails to pay the debt on time.

What is a Surety Bond?

Surety bonds also help you ensure that the liable parties completely perform service.

If the service is not completed, another party will compensate for the damage or complete the remaining task.

No matter which type of Surety Bond is there, you will see 3 different parties in each surety bond.

How do Surety Bonds work?


Business or person who promises to do the job or complete the service. This is the party that pays Surety Bonds fees.


Business or person who has taken the service. If the service provider fails to provide the service, then the Obligee suffers.


The party that offers compensation to the Obligee in case of service failure.

There are thousands of Surety Bonds available. But we can categorize them into 3 types.
Commercial Security Bonds safeguard the oblige from frauds and harmful businesses.

Surety Bonds work as a guarantee that Obligee must get the complete service or compensation.

Government do it to protect the public from losing money.

What are the different types of Surety Bonds?

Commercial Security Bonds:

Licenses and permits are the best examples of commercial security bonds. Only government issues licenses and permits.

Sales Tax Bonds:

The business pays sales tax to the government after completing the sale.

Auto Dealer Bonds:

Contract surety bonds are the contract that explains every term service provider must fulfill while completing the job.

Prevent dealerships from using unethical ways to run automobile business.

Construction businesses use these types of bonds.

Business Service Bonds:

Protect people from financial and property loss.

Contract Surety Bonds:

If a service provider fails to provide the service according to the mentioned terms, he/she has to compensate the oblige. For example, if you buy a house from a builder, you can ask about who the contractor is and if he has completed the job. This website tells you more about finding a new home.

Here are the most common types of contract Surety Bonds:

Bid Bonds:

Bid Bonds ensure that the contractor should not step back from the party who has won the bid.

Performance bonds:

Court Surety Bonds reduce the risk of financial loss. Judicial bonds and fiduciary bonds are the most common examples of Court surety bonds.

These protect project owners from any service failure.

Payment Bonds:

These bonds make sure that the contractor will compensate the suppliers and subcontractors.

Low-risk security bonds are cheaper as compared to high-risk surety bonds.

Court Surety Bonds:

Remember: You cannot apply surety bond for cannabis because of the health risk. Learn more here.

How Much can Surety Bonds Cost?

Various factors influence the cost of Surety bonds.


You only need surety bonds when you are taking a service or offering a service where the risk factor is high or financial risk is there. You can also check best surety bond ny.

If you still have any questions, feel free to ask me.

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