Commercial bonds can be further segmented into more categories; however, they are often required as a licensing requirement for regulated industries (ex., contractor licenses, motor vehicle dealer licenses, etc.). If the licensed business or individual fails to adhere to licensing laws, any injured party may recover damages from the surety that issued the bond up to the bond amount by filing a valid claim. However, the principal (the business or individual that has the bond) is financially liable for reimbursing the surety for any claims paid out by the surety, plus additional fees or expenses incurred by the surety.
Contract bonds, on the other hand, are most often associated with the construction industry. There are contract bonds for commercial projects, such as security and janitorial contracts; however, for simplicity, we will be using examples from the construction industry here.
Contract bonds are typically required for public construction projects to transfer—from the project owner to the surety company—the liability associated with a contractor backing out of or failing to complete a project as outlined by the contract. For instance, if the contractor uses faulty materials, does not complete the project, or fails to pay their suppliers and subcontractors, the injured party (typically the project owner) can file a claim against the contractor bond to recover damages. Again, the principal on the bond (the contract) is ultimately financially liable for any valid claims.
For small businesses in the building contract sector, the SBA Surety Bond Guarantee Program offers a crucial lifeline to securing necessary surety bonds for bidding on both government and private contracts.
Especially beneficial for newer businesses struggling to meet the stringent financial history requirements of traditional bond issuers, the SBA's support can open the door to larger contracts and market expansion.
The SBA Surety Bond Guarantee Program stands out as an invaluable tool for small businesses looking to grow and succeed in the competitive building contracts market.
Take advantage of our unique SBA line of authority with our surety partners and partner with BOSS Bonds for a quicker, smoother bonding process.
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