What is a Surety Bond
A surety bond is simply an agreement between three parties: Principal, Surety and Obligee. The surety provides a financial guarantee to the obligee (i.e. government) that the principal (business owner) will fulfill their obligations.
A principal’s “obligations” could mean complying with state laws and regulations pertaining to a specific business license, or meetings the terms of a construction contract, depending on the type of surety bond.
If the principal fails to meet their agreed upon obligations with the obligee, the surety may be required to resolve the dispute by paying a claim to the obligee. It is in this sense that a surety bond is similar to a form of credit extended to the principal by the surety.