A surety bond is a legally binding contract that involves three parties: the principal, the obligee, and the surety.
For businesses, surety bonds are essential for securing contracts, licenses, or permits, as well as ensuring compliance with industry standards. For individuals, they provide a safeguard in certain legal and financial matters, offering protection and peace of mind for whom they have an obligation to. Bonds for individuals can also be used for licensing and permits, if they are operating a business as a sole proprietor.
At Bond Connect, we specialize in understanding your specific needs and providing expert guidance to ensure you get the right bond quickly and efficiently. Whether you’re a business needing a contract bond for a major project or an individual requiring a small scale commercial bond, we are here to help.
Understanding Surety Bonds
What is a Surety Bond?
Bonds are three party agreements between the principal, the obligee, and the surety.
It acts as a financial guarantee for the obligee that the principal will fulfill their obligations; whether that be completing a project, adhering to certain regulations around a project, or meeting government requirements that have been put in place.
The principal is the individual or the business that is being required to post the bond to guarantee that they meet requirements, complete projects, or adhere to regulations.
The obligee is the entity that is requiring the bond. This is to help ensure the principal will meet and complete all of their obligations.
The surety is the company that issues and guarantees the bond. These surety companies are often large insurance providers, as they are the ones who have the capital available for large financial obligations at risk.
Surety bonds are not the same as insurance. While insurance policies provide protection against unforeseen events, surety bonds are designed to protect against the failure of a specific action.
In other words, a surety bond is a guarantee that a certain action will be performed, whereas an insurance policy is a way of mitigating the financial impact of unpredictable events.
It’s also important to note that if a principal has a claim under a surety bond, they are still responsible for the financial damages caused by this default.
Why Do You Need a Surety Bond?
Being bonded can help to establish credibility and trust with your customers.
When you are bonded, you are showing your willingness to take extra steps to ensure that your work is done properly and that your customers are protected.
In certain industries such as construction, this can be particularly important for customers that are looking for contractors who are reliable and trustworthy.
Additionally, being bonded can help you to procure more business. There are many organizations that require their contractors to be bonded as a condition of doing business with them.
By being proactive and having a bond facility or general surety bond in place, you can increase the chances of winning any bids or contracts you are trying to obtain.
Ultimately, the number one reason that you’ll need a surety bond is… Because somebody told you so.
It can also be a useful tool for replacing letters of credit (LOCs) like in the case of developer bonds and freeing up capital for site servicing agreements.
When Would You Require a Surety Bond?
Construction Projects: Contractors often need surety bonds such as bid bonds, performance bonds, or payment bonds to guarantee the completion of a project or payment to subcontractors and suppliers.
Business Licensing: Many industries require a license bond for businesses to obtain or renew their operating licenses, ensuring compliance with regulations. Some common examples of license bonds are:
Importing and Exporting Goods: Customs bonds are required for businesses importing or exporting goods and / or services across borders to guarantee payment of duties and taxes.
Court Proceedings: Individuals may need court bonds, such as administration bonds also called committeeship bonds, when involved in legal matters relating to inheritance of estates. These bonds ensure compliance with court rulings or fiduciary duties in estate management.
Different Types of Surety Bonds
Contract Surety Bonds
These types of bonds are essential in the construction industry, ensuring that all parties fulfill their obligations and protecting project owners from financial risk of contractor defaults.
Bid Bond:
Guarantees that the contractor will honour their bid price after winning a contract. This protects the project owner from any financial losses if the contractor refuses to continue after winning the bid. These bonds are frequently issued in the amount of 10% (ten percent) of the tender price; however, they can also be for specified dollar amounts.
Performance Bond:
Ensures the contractor will complete the project according to the agreed terms and conditions. If the contractor fails, the bond compensates the project owner for any financial loss incurred to rectify the issue.
Labour & Material Payment Bond:
Also referred to as an L&M Bond – this guarantees that the contractor will pay subcontractors, suppliers, and laborers involved in the project. This protects these parties from non-payment if the contractor goes bankrupt or refuses to pay invoices related to the job bonds are issued on.
Commercial Surety Bonds
These are bonds that help individuals & businesses to operate legally and ethically while protecting public agencies and consumers. There are a wide range of commercial bonds across many industries, but here are some of the most common.
License and Permit Bonds:
Required by government agencies for business operations to obtain or maintain licenses. These bonds ensure the business complies with regulations and standards that have be set forth like the Technical Safety Act in BC and Saskatchewan.
Customs Bonds:
Required for businesses that are involved in importing and exporting goods and services. A customs bond guarantees payment of duties, taxes, and compliance with any import/export laws that have been put in place. These are typically payable to CBSA or CRA in Canada.
Reclamation Bonds:
These bonds are typically used in the mining industry and are used to guarantee that land, post-mining, is put back into the same condition it was prior to the mining operations being completed. Reclamation Bonds are available as replacements for other forms of security to Canadian Mining Authorities.
Guardianship Bonds:
Required for any individual appointed as a guardian over a minor or an incapacitated person. This bond ensures that the guardian will act in the best interests of the person they are responsible for. Other names for this type of bond include:
- Administration Bond
- Committeeship Bond
- Probate Bond
Where to Purchase a Surety Bond
Book a Consultation With a Bonding Expert
Through Your Insurance Brokerage
- NOT RECOMMENDED
Although it may seem convenient to use your insurance broker as your representative to obtain surety bonds – this is not typically recommended.
These insurance focussed brokerages often prioritize placing business with their top insurers in order to boost commissions, even if it doesn’t mean the best deal for their clients.
Insurance brokers also often lack expertise in the surety bond field and their main line of work is insurance. As we reviewed earlier, SURETY BONDS ARE NOT INSURANCE!
Believe it or not, in Canada the licensing for surety only brokers and insurance brokers are the same! This is why insurance brokers often think it may be an extra income stream for them to offer bonding as a secondary service. This licensing is through the Insurance Council of BC (or the respective province the brokerage is operating in).
Through a Specialized Surety Bond Broker
- OPTIMAL & BENEFICIAL
Specialized brokerages like Bond Connect focus only on surety bonds, offering expert guidance to secure the right bond for a client’s individual needs. They can also offer access to multiple surety markets to help provide more competitive rates and personalized service.
An experienced surety brokerage will help to ensure that your bond facility matches the needs and scope of your business, helping to improve your rates, limits, servicing, and overall experience.
Don’t hesitate to contact us with any questions you may have about how we can improve your bonding experience.
Why Choose Bond Connect?
Reputation and Trust
We’re a Canadian Surety Bond Brokerage providing a diverse range of bonding services in construction & development, licensing & permit, customs & excise, as well as other industries.
We only do bonding! While it may seem convenient for contractors and other businesses to handle bonding through their insurance broker; as mentioned earlier, these brokers often prioritize placing business with their top underwriters to get contingent commissions. We only aim for top rates & services.
Just remember that not all bonds are created equal, and it’s important to work with a reputable bonding company to ensure that you have the right bonds in place to meet all of your obligations. We can help with that.
Commitment to Clients
There are many reasons why your business should be bonded. Whether you’re looking to establish credibility with your customers, replace a letter of credit with a bond, or comply with legal requirements, getting bonded can be a smart investment.
Bond Connect understands the nuances of surety bonds, ensuring clients get the right bond for their needs. Additionally, the application and approval processes are streamlined, saving clients time and effort.
Whether it is for bond renewals or the issuance of new bonds, we are here to support our clients through the approval process.
Access to Bonding Underwriters
We have access to all of the top AM Best Rated Surety Underwriters, including the bonding only guarantors. Although insurance companies are the ones that provide the financial backing for guarantees, the expertise needs to be there to ensure a streamlined process and lowest rates available.
We work with Trisura Guarantee, Intact Insurance, Travelers Insurance, Swiss Re, Aviva Insurance, and more so you can rest assured you’re attaining best in class limits, rates, and service.
FAQ to Purchase Bonds
Q: What is the difference between a surety bond and insurance?
A: A surety bond ensures a business or individual fulfills a specific obligation, while insurance provides financial protection against unforeseen circumstances like theft, flood, or fire. The key distinction is that a bond protects the obligee, not the principal. A specialist bonding broker can help clarify your specific requirements.
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Q: How long does it take to get approved for a surety bond?
A: Approval times depend on the bond type and the applicant’s financial standing. Some bonds can be issued literally within minutes through our online portal, while others take several days or weeks depending on the breadth of information needed. Bond Connect can help expedite the process regardless of the bond type you need.
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Q: Can I get a surety bond through my insurance broker?
A: Short answer is, yes. However, not all insurance brokers offer surety bonds due to their specialized nature. Insurance brokers also often lack the expertise needed to properly get bonds issued. Working with a dedicated bond broker is often most effective. We’re here for that!
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Q: What factors influence the cost of a surety bond?
A: The cost varies based on bond type, personal and corporate history, and financial standing. Comparing quotes from different surety providers through a brokerage like Bond Connect ensures you obtain the best in industry rates, limits, and servicing available to you and your business.
Concluding Where To Purchase a Surety Bond
As an overview – surety bonds are essential to many businesses. They help to ensure compliance with industry or government laws and standards, and help to secure contracts, permits, or licenses.
Additionally, they can be just as important to individuals, providing a safeguard in financial or legal matters, offering peace of mind and protection for whomever the obligee requesting the bond is.
Securing the right surety bond is essential for your business to gain the trust of clients and regulators, to properly fulfill legal obligations, and to protect your business in the event of default. Choosing the right partner to navigate the complexities of surety bonds can make all the difference.
A specialized Surety Bond Broker can help you to get the appropriate surety bond quickly and efficiently. Contact Bond Connect today to explore your options and let us assist you with any of your bonding requirements. Booking a consultation is just a click away.
