If you’re starting a construction company, you will need to obtain a construction surety bond.
This article will explain what a construction surety bond is, why your business needs one and how you can obtain one.
What is a Construction Surety Bond?
A construction surety bond is a type of insurance that protects the owner of a construction project from financial losses if the contractor fails to complete the project or meets the terms of the contract. An insurance company and guarantees issue the bond that the contractor will fulfill their obligations.
Why Does Your Business Need a Construction Surety Bond?
Obtaining a construction surety bond is often a requirement for bidding on construction projects. It shows that you are a responsible and reputable contractor you can trust to complete the project. A construction surety bond also protects the project’s owner from financial losses if you default on the contract.
Types of Construction Bonds
There are three types of construction bonds: bid bonds, performance bonds, and payment bonds.
Bid bonds are issued to guarantee that you will enter into a contract with the project owner if you win the bid.
Performance bonds protect the owner from financial losses if you fail to complete the construction project or meet the terms of the contract.
Payment bonds guarantee that you will pay your subcontractors and suppliers for work related to the construction project.
How Do You Get a Surety Bond?
You can obtain a construction surety bond from an insurance or surety company. The process is called “underwriting.” The underwriter will review your financial history and business operations. If approved, the bond premium is set.
The process goes as follows.
- Choose an insurance company or surety company that you want to work with.
- Contact the company and request a quote.
- The company will review your financial history and business operations.
- If you are approved, the company will set the bond premium.
- You will pay the bond premium, and the company will issue the bond.
Obtaining a construction surety bond is essential in starting your construction business. It shows that you are a responsible and reputable contractor you can trust to complete the project. It also protects the project’s owner from financial losses if you default on the contract.