Authored and Reviewed by: Sam Meenasian, Licensed Insurance Professional (CA License #0F75955) Last Updated 04/08/2026
This overview is for educational purposes only and is not legal, tax, or insurance advice. Coverage terms and availability vary by state, carrier, and risk.
Bonds are financial agreements that provide a guarantee to one party (obligee) that another party (principal) will fulfill their obligations. They are commonly required in various industries to ensure compliance with laws, contracts, and ethical standards.
Unlike business insurance, bonds are designed to protect the obligee or the public, and the bonded business is usually obligated to reimburse the surety for any claims paid.
License Bond
Description: A License Bond is a type of surety bond required by government agencies to ensure that businesses comply with state laws and regulations. These bonds protect consumers from potential harm caused by the business's failure to adhere to licensing laws.
Example of a Claim: If a licensed contractor performs substandard work that violates state regulations, a claim can be made against the bond to cover damages or fines.
Description: Government authorities require a Permit Bond for individuals or businesses seeking specific permits to conduct activities that could affect public safety or the environment. This bond ensures that the permit holder complies with all relevant regulations.
Example of a Claim: If a company fails to restore a site to its original condition after completing construction work under a permit, a claim may be made to cover remediation costs.
Description: A Dishonesty Bond, also known as a fidelity bond, protects employers against financial loss resulting from fraudulent acts by employees, such as theft, embezzlement, or forgery.
Example of a Claim: If an employee embezzles funds from the company, the employer can file a claim against the bond to recover the stolen amount.
💡 Who Needs It: Businesses that handle significant amounts of cash or valuable assets, including retail stores, banks, and financial institutions.
Bid Bond
Description: A Bid Bond is required during the bidding process for construction projects. It guarantees that the contractor will enter into the contract at the bid price if awarded, and provide the required performance and payment bonds.
Example of a Claim: If the contractor with the winning bid fails to honor their bid and refuses to sign the contract, the project owner can file a claim to cover the cost difference by selecting the next-lowest bidder.
💡 Who Needs It: Contractors and construction companies bidding on public or private projects.
Performance Bond
Description: A Performance Bond guarantees that a contractor will complete a project in accordance with the contract's terms and conditions. It protects the project owner from financial loss if the contractor fails to deliver on their obligations.
Example of a Claim: If a contractor abandons a project midway, the project owner can file a claim to cover the cost of hiring another contractor to complete the work.
💡 Who Needs It: Contractors and construction firms working on government or large-scale private projects.
Payment Bond
Description: A Payment Bond ensures that a contractor will pay all subcontractors, laborers, and suppliers involved in a project. It protects these parties from non-payment, ensuring that they receive compensation for their work and materials.
Example of a Claim: If a contractor fails to pay a subcontractor for completed work, the subcontractor can file a claim against the contractor's bond to recover the amount owed.
💡 Who Needs It: Contractors working on projects where the owner requires assurance that all parties will be paid for their contributions.
Work With USA Business Insurance
We have...
Licensed insurance professionals: Your surety and fidelity bond needs are reviewed by licensed agents with real‑world experience in small business risks.
Access to highly rated carriers: We work with financially strong insurance companies, including many carriers rated A or better by independent rating organizations.
Small‑business focus: Our team specializes in contractors, trades, and small commercial operations.
Fast, practical help: We explain requirements in plain language and help you get bonded as efficiently as possible.
FAQs for Bond
How Much Does a Surety Bond Cost?
Most surety bonds cost a small percentage of the required bond amount—often between about 1% and 10% for typical applicants. The exact rate depends on factors like the type of bond, the bond amount, your personal and business credit, and your industry.
For example, a $10,000 bond might cost $100 at a 1% rate or $1,000 at a 10% rate.
What Will Underwriters Look At?
When you apply for a surety bond, the underwriter typically reviews:
Your bond application and personal information
Credit history (personal and business)
Business financial statements (especially for larger bonds)
Experience in your trade or industry
Details of the contract or legal requirement being bonded
Any prior claims or legal issues
The goal is to evaluate your ability to fulfill the obligation and repay the surety if a claim occurs.
What’s the difference between a surety bond and insurance?
A surety bond primarily protects the obligee or the public, and you, as the principal, are usually responsible for repaying the surety if a claim is paid. Traditional insurance is designed to protect the policyholder, and covered claims are typically not repaid by the insured.
If a claim is paid on my surety bond, do I have to pay it back?
In most cases, yes. You sign an indemnity agreement when you obtain the bond, which generally requires you to reimburse the surety for valid claims, plus associated costs, subject to the terms of that agreement.
Can I get a surety bond with bad credit?
It’s often still possible, especially for smaller bonds, but the premium may be higher, and additional documentation may be required. Our agents can help you explore options if your credit is less than perfect.
Souces
Organization
Resource Focus
URL
U.S. Small Business Administration (SBA)
Official federal guide to surety bond programs, bid & performance bonds for small business contracting.
(888) 900 0205