What kinds of surety bonds are there?

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Surety bonds are a financial guarantee between three parties in a legally binding contract. These three parties are the obligee, the principal, and the surety. In essence, the surety guarantees payment of a specified maximum sum or compensation in case the obligee incurs any damages or loss caused by the actions (or a failure to perform) of the principal.

Page of newspaper with words surety bond.

The Principal

The principal is the person or company who has to purchase a bond. The surety then provides a financial guarantee to the obligee that the principal is financially sound to undertake the project.

The Obligee

The obligee is the party that requires the principal to purchase a bond.

The Surety

The surety is a company that guarantees the bond. Therefore, the surety also provides the financial assurance of the principal. If the principal does not follow the terms and conditions of a bond, the obligee can make a claim and collect damages. If the claims are valid, the surety will reimburse the obligee and then seek reimbursement from the principal.

Surety bonds are required by those in business  who provide services to consumers and government offices.  Although surety bonds all have the same purpose, there are different types of surety bonds, each with its own requirements and uses. There are two main categories:


Contract sureties guarantee that projects are completed on time. Due to this benefit, most municipalities and governmental agencies require construction bonds on public works projects.

There are three types of contract bonds;

A Bid bond makes sure that the applicant will enter into the agreement with financial backing.  If given the contract, they will be required to obtain payment and performance bonds.

A Performance bond is a protection to the obligee in case the contractor defaults on their contractual obligations. Basically, it guarantees the satisfactory completion of a project within a specific time frame.

A Payment bond is a bond that makes sure that the contractor will pay any subcontractors, laborers and material bills associated with the construction project. 


These surety bonds ensure that businesses will do their job according to the licensing laws and industrial regulation. Business owners, entrepreneurs and other working professionals may need to purchase commercial surety bonds.

License and permit bonds: required by a municipality or other public body as a condition to grant a license or permit.  In addition, it guarantees that a business will operate in accordance with federal, state, or local laws and regulations.

Court bonds: include judicial bonds and are requirement of either a plaintiff or defendant in judicial proceedings.  They also help to preserve the rights of the opposing litigant or other interested parties.

Fiduciary bonds: required of those who administer a trust under court supervision.

Public official bonds: required by statute for certain holders of public office.  An added benefit, is that these bonds help to protect the public from unethical practices by an official or from an official’s failure to faithfully perform duties.

Miscellaneous bonds: any bond which does not fit into any of the other categories above.

Surety Bond Professionals is a trusted and loyal surety bond service company which offers its surety services in Massachusetts and throughout the country. In Massachusetts, there are several businesses that need permits or licenses to operate.  Therefore, let Surety Bond Professionals be your guide in deciding which surety bonds will help to promote and protect your business.