What is a surety bond?

There are many different types of surety bonds, but the two general categories are “contract” and “commercial” bonds. A Contract surety bond ensures completion in the event of contractor default. A project owner (called an obligee) seeks a contractor (called a principal) to fulfill a contract. The contractor obtains a surety bond from a surety company. If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred.

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