A surety bond is a written agreement whereby the Surety guarantees that the obligor will fulfill its guarantees that the debtor will fulfil its obligations to a third party (the creditor).
Under the agreement if the obligor defaults on its obligations, the surety must complete the work on behalf of the obligee or pay the costs of completion on behalf of the obligee. Contrary to popular belief, a surety bond is not an insurance policy. It is actually a business partnership between the client and the surety! Often mandatory, a surety bond increases the level of confidence between the company and its suppliers, its customers or any other organization that requires a bond, by protecting them against the damages resulting from the potential inability to fulfill certain commitments. Surety bonds are therefore an essential component of a company’s financial services basket.