Surety Bond Company

Written by Michael O'Brien
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The purpose of a surety bond company is to protect the financial responsibilities of those paying for a particular service. Should the unexpected occur or if a project costs more than originally projected due to negligence or incompetence on the part of the contractor, the one doing the hiring shouldn't be held financially responsible for that. This is where a surety bond company comes in.

How a Surety Bond Company Operates

The reason it is within the best interests of the obligee, or the party paying to have a service rendered, and the principal, which is the company or organization being hired to render such services, is because of financial obligations. A company is bonded for a reason. A surety agency must absorb the loss if they make a mistake. A surety is only going to bond a company if there is no projected risk of them being negligent or incompetent. The bonding process is meant to be a measure of success and reliability, not an insurance policy in case something will go wrong.

So why is it in the best interests of surety companies to issue bonds? Where do they profit? Chiefly, underwriting costs on the part of the company being bonded are paid to a surety bond company to cover business expenses. The bonding process itself also includes an extension of credit with the assumption that all contractual obligations will be met. The more companies a surety bonds, the more profit they make.

This is why it is so important that a surety company be reliable and trustworthy. If a company does falter, it is the financial responsibility of a surety to cover that loss. Surety companies must be very careful about who they bond. They too must have a good track record for companies to want to be bonded by them, or for obligees to want to deal with companies they have bonded.

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