What is the meaning of a surety bond?
Surety bonds are used in a wide variety of commercial transactions, business operations and court actions. A surety bond is issued by a surety company to guarantee the performance of one party to another party. If the agreement is not upheld, then the bond holder is entitled to monetary compensation.Types of BondsThere are many types of surety bonds, but they fall within three basic categories: commercial bonds, contract bonds and court bond.Commercial BondsCommercial bonds are issued to a company as a condition of doing business, typically as a requirement for obtaining a license. For example, the Federal Motor Carrier Safety Administration requires that a freight broker’s bond be obtained as a condition of receiving a property broker’s license, which is necessary to act as a transportation broker.Contract BondsContract bonds are frequently used to manage risk on construction projects, both privately owned and public works.
