A: Surety bonds provide financial guarantees that contracts and other business deals will be completed according to mutual terms. Surety bonds protect consumers and government entities from fraud and malpractice. When a principal breaks a bond's terms, the harmed party can make a claim on the bond to recover losses.

What is the purpose of a surety bond?

A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).

Why do Contractors need surety bonds?

The surety bond will protect the third-party that is hiring you to complete a project from any possible losses that would result from your company failing to make good on what was promised in the terms of the agreement. If this does occur, the third party can file a claim and receive compensation for these losses.