Many industries in North Carolina and across the country reinforce professionalism and discourage malpractice by requiring professionals to have a surety bond. A surety bond is a contract between multiple parties (principal, surety, and obligee) wherein the surety guarantees that the principal will fulfill their obligations as per the terms of the bond.
Here are some of the essential facts that you need to know about these commercial bonds.
#1. A Surety Bond Is Not Insurance
Insurance protects you from liability and is usually a contract between two parties. In contrast, a surety bond makes you liable for your own actions, such as professional malpractice. Also, it’s a legally enforceable deal between three parties.
#2. A Surety Bond Doesn’t Protect the Buyer
When you purchase a surety bond as a requirement for a construction project, for example, you’re not the protected party. The purpose of the bond is to protect the entity requiring it, such as the project owner.
#3. Costs of Surety Bonds Vary
The cost of a surety bond in NC isn’t necessarily the same as for another city. The nature and scope of the risks for which you’re required to get a surety bond vary by location, industry, and amount of coverage, all of which affect the overall cost.
#4. There Are Times You Won’t Need a Surety Bond
A surety bond isn’t always required for all kinds of business. It usually works for three parties to a contract, not for two or more than three parties.
#5. Surety Bonds Aren’t Trust Accounts
A surety bond isn’t the equivalent of a trust account. Neither is it a business asset that you can tap into for cash.
#6. Surety Agencies Don’t Dictate Bond Requirements
When required to get a bond, ask the obligee for all the requirements. Surety agencies will rely on this information to quote and issue the bond.
#7. Surety Bonds Aren’t Always Avoidable
Surety bonds for specific types of businesses or operations aren’t usually optional.
#8. Startups Don’t Need to Purchase a Surety Bond
You don’t need a commercial surety bond to start a business. However, these bonds may be required once you apply for a license after you’ve established your company.
#9. Surety Bonds Don’t Impact Your Credit
A surety agency may review your credit to assess your financial capability to pay the company back in case of a claim against you. However, this won’t affect your credit score.
#10. Surety Bonds Aren’t Refundable
You won’t get back the money you spent on a surety bond after successfully satisfying the contract terms. Surety issuers don’t refund these funds.
#11. You Can’t Transfer Surety Bond Requirements
If you operate in multiple cities, you’ll most probably need to get a surety bond for each city. This is because every jurisdiction, including counties and states, has a different risk level and unique set of requirements.
#12. You’ll Have to Pay for Your Surety Bonds in Full Upfront
Unlike insurance premiums, surety bonds aren’t paid for in installments. Instead, you’ll have to pay for your bond in full before you can begin the contract work.
#13. Payment Bonds and Performance Bonds are Different Things
The purpose of a performance bond is to guarantee the quality of your work as per your contractual obligations. On the other hand, a payment bond ensures that the vendors, subcontractors, and workers are paid.
You may need a surety bond to get certain types of contract work or be licensed for specific types of business. If you have any questions about different types of commercial bonds, contact the experts at Pittman Insurance Group, LLC today. We are happy to help you get a bond that’s best suited to your profession.