As an independent contractor or owner of a contracting business, you’ve likely heard about surety bonds. To ensure that your business is protected and you maintain and develop a positive brand reputation, use contract bonds provided by Pinnacle Surety.
A contractor bond is a type of surety bond. Though all surety bonds protect both parties to some extent, they’re primarily designed with the interest of the principal in mind. In contrast, contractor bonds are primarily designed to protect contractors upon taking on a project.
What is a surety bond?
A surety bond is a contract that is signed by two parties: a contractor and the third party who has hired the contractor – often called the principal.
The contract lays out the expectations that the principal has for the contractor, as well as the costs agreed to by the principal. A surety bond will be written into the contract and stipulates under what conditions, and how much, the surety will pay to the principal in the case that the contractor does not – or cannot – deliver on one or more aspects of the contract.
Why do I need a surety bond?
Surety bonds are often legal requirements, but even without the legality aspect, they’re still important for protecting both the contractor and the principal.
The main benefit of a surety bond for the principal is that it ensures that the money they’ve paid to the contractor is all that is needed to complete the project. If the contractor cannot complete the project, the principal has the security of knowing that another contract will be able to complete the work without having to shell out significantly more cash.
As a contractor, surety bonds are important too. No matter how much you pride yourself on running an efficient, high-quality, and trustworthy business, sometimes the unexpected happens. If you’re unable to fulfill the contract in full for any reason, you are protected from any legal action that may be taken against you.
Types of surety bonds
Contract bonds, also known as construction bonds, may involve several different types of surety bonds. The most popular types of contract bonds include:
- Bid bonds. This type of bond ensures that the contractor that wins the bid enters into a contract with the principal.
- Performance bonds. These protect the principal from financial loss in the case that the contractor does not meet the expectations for the project timeline, cost, and other points within the contract.
- Payment bonds. Used in conjunction with performance bonds, payment bonds stipulate that the contractor be responsible for paying for all materials and laborers.
- Subdivision bonds. Similar to performance bonds, subdivision bonds are used by public bodies to ensure that land improvements are paid for by the landowner or property developer.
- Permit and license bonds. These bonds differ at the city, state, and national levels. Individual contractors and businesses are often required to obtain one or more of these bonds to protect the public from mistakes they may potentially make.
Another type of bond, known as a completion bond, ensures that the contractor will complete a project within the agreed timeframe and budget. Unlike the above contract bonds, a completion bond ensures that a job gets done without financial loss even in the event that a hole exists in one contract.
Best surety bond company for contractors
The best surety bond company for contractors is one through which a wide range of bonds is offered. Contractors should also look for companies that offer contractors bonds, which are designed to protect contractors from financial risk.
It’s also important to look for a company that has enough experience to determine which bonds are right for your business. As a contractor, determining which bonds you need can be overwhelming. Without enough knowledge, you may end up missing a bond and facing unexpected consequences as a result.
In addition to knowledge and offerings, you’ll want to look for a surety bond company that has the following traits:
- Financial stability. A company that has been around for a long time is likely to be financially stable, but this isn’t always the case. Research the company to ensure there have been no stories that indicate they might be in a precarious position.
- Fully licensed. Find out what licensing is required in your state, and check that the surety company, as well as their partners, are fully licensed.
- Reputation. What kind of reviews has the surety company received? Though online reviews do not always paint an accurate picture, if the reviews are overwhelmingly positive, you have greater assurance that you’ll enjoy working with them. On the other hand, if testimonials are overwhelmingly negative, it may be best to look for another company.
- Surety partners. Although the surety bond company may seem reputable, are their partners? When consulting with a company, ask which partners they work with and verify that these partners are all A-rated and T-listed. All should be listed on the Treasury’s list, and ratings can be found by checking for the company on the Treasury’s List of Approved Sureties or A.M. Best Company.
Choose Pinnacle Surety for your contractor bond needs
As one of the leading bond agencies, you can’t go wrong by choosing Pinnacle Surety for your surety bond needs. With over 25 years of experience in providing contractor bonds and other construction bonds, we are the premier choice for ensuring that your business and clients are well-protected.
In addition to experience, one of the biggest advantages of working with Pinnacle Surety is that we work hard to offer you the most competitive pricing for your bond needs. While the cost of a contractor bond is a worthwhile investment to make both for the financial future of your business, as well as your peace of mind, the less you can spend without compromising on comprehensivity, the better.
Contact Pinnacle Surety today to discuss your surety bond needs, and a member of our knowledgeable and professional team will be happy to assist you.