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What is a surety bond, really?

A surety bond guarantees that you will do what you promised to do. Unlike insurance, which protects you, a bond protects your client (the Project Owner). You trade a small cost (the premium) for the Surety's financial backing (credit), proving to the owner that their project will get finished no matter what.

Who needs surety bonds?

Short answer: If you want to get licensed to work or win a public contract, you need a bond. Long answer: The government and your clients don't know if they can trust you yet. Most states and large clients require a financial guarantee before they let you operate. Instead of locking up your own cash to prove you are reliable, you use a surety bond to vouch for you.

What does it cover?

It covers the cost of "Broken Promises." Specifically, a bond covers the financial loss the Obligee (the government, your client, or the public) suffers if you fail to fulfill your contract or follow the law.

What does it NOT cover?

It excludes "Your" Protection. This is the biggest confusion. Bonds are not insurance. Insurance protects you. Bonds protect the public from you. If the surety pays a claim, you must pay them back.

How much does it cost?

The short answer: Usually between 1% and 3% of the bond amount. The real answer: It depends entirely on two things: What bond you need and your personal credit.