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A surety bond is a three-party contract where a surety company guarantees a principal will fulfill a specific obligation to an obligee. If the principal fails to meet their obligation, the surety company compensates the obligee and then collects the costs from the principal. These bonds protect the obligee from financial loss if the principal defaults on a contract, a regulation, or other commitment.
Construction surety bonds with financing to enhance the contractors bonding capacity. An example a contractor who qualifies for a million dollar bond with 20% start up capital embedded into the bond the contractor can qualify for about 2 million.
The party who is obligated to perform an action or duty.
The party who receives the guarantee that the principal will fulfill their obligation.
The insurance or bonding company that guarantees the principal's performance to the obligee.
A principal is required to obtain a surety bond to guarantee their performance or compliance.
A surety company issues the bond, acting as a guarantor.
If the principal fails to meet their obligations, the obligee can file a claim against the bond.
The surety company investigates the claim and, if valid, compensates the obligee. The principal is then required to repay the surety for any amount paid out.
Surety bonds are used in various situations, including:
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