A surety bond offers your company the scope it requires to compete for major contracts if your credit worthiness is called into question. A surety bond means your ordinary bank lines of credit remain available to launch other projects if need be.
Each surety bond is based on the same principle:
Your customer receives a surety bond in exchange for the award of a project.
You pay a premium to your insurance company, which agrees to take over your debts in the event of your insolvency.
Your insurance company may subsequently turn to you for the repayment of the guaranteed amount.
A surety bond invariably applies for a specific period of time and arises from a contractual or legal obligation.
Regulatory and contractual surety bond
By far the most common surety bond is a contractual bond, where you ask your customer to provide surety before launching a project (bid bond, advance payment bond, performance bond,...).
Some surety bonds are legally defined: VAT, customs duties, surety bonds for environmental risks,...