It used to be that a man’s word was his bond and a handshake was enough to seal a deal, but nowadays, that’s probably not enough. Even a signed contract can be broken, and enforcing it can be tough if you’re on your own. Sometimes you’ll need to guarantee a client that a job will be well done; other times, you’ll be the one needing the guarantee that you’ll be paid when the job is finished. For those times when a handshake isn’t enough, consider a surety bond.
What are surety bonds?
A surety bond is essentially a guarantee from one person or business to another that is backed by a third party. The principal is the person making the guarantee, the obligee is the person receiving the guarantee, and the surety is the third party who sells the guarantee. If a principal falls through on his or her part of the guarantee, the obligee can make a claim on the bond and the surety will pay it out.
There are many, many types of surety bonds. They can guarantee that the recipient of a service will pay for that service, guarantee that taxes will be paid, or guarantee that a contract will be fulfilled. Some are even required for licensing in certain professions and in certain states,
Sales Tax Bonds
If you sell goods, you’ll be required to get a sales tax bond. This bond guarantees that you (the seller) will pay all the sales tax you owe and report your earnings accurately and on time. If you don’t, the government agency responsible for sales tax in your area can make a claim on the bond to recover any taxes you failed to pay.
A contract bond guarantees that the principal will follow through on a contract with the obligee. If the principal fails to fulfill his or her part of the contract, the obligee can make a claim on the bond.
A construction bond is a contract bond specific to a construction project. It guarantees that a contractor will adhere to the contract, complete the project, and avoid problems that could jeopardize the completion of the project on time or on budget. Most large construction jobs and government construction projects will require a bond because construction can run into so many problems and completion of a project can rely on many different contractors each fulfilling their specific parts of it.
What happens if someone makes a claim on your bond?
If someone makes a claim on your bond, the bond company will first listen to both sides of the story and try to determine if the claim is legitimate. It is best if you can resolve the issue at this stage. If the bond company decides the claim is reasonable, it will pay out the claim, and you will have to pay back the bond company.
Have a need for surety bonds in Springfield? Contact Adkins Insurance Agency to schedule an appointment.