A surety bond is a three-party contract between the following:
- Principal: The business or individual who purchases the bond
- Obligee: The party that requires the bond (e.g., the state government)
- Surety: The bond underwriter
If the bondholder (principal) fails to comply with the bond agreement, the obligee may file a claim against the bond. The surety can step in and cover the amount owed upfront. Then the principal will be liable for paying the surety back for the same amount.
The cost of a bond can vary based on a few factors, including the type of bond, the amount required, and your credit score and finances. Your bond premium will be a small percentage of the total bond amount – typically 1-10%.
Generally, the stronger your credit score, the lower your rate. However, we don’t even need to run your credit in some cases. Some bonds can be issued instantly at a flat rate.