Bonds

Surety Bonds

Bonds that assure a government agency, project owner or customer that your business will meet its obligations. Sureties review them more like credit than insurance.

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A surety bond is a three-party agreement. The surety backs the promise of the principal (your business) to an obligee, such as a licensing agency, project owner or customer, that you will perform as required by law or contract. If you don't, the obligee can make a claim against the bond.

Unlike insurance, a bond isn't designed to absorb your losses. If the surety pays a valid claim, it typically expects to be repaid by your business and any indemnitors under a general indemnity agreement (the repayment agreement you sign with the surety).

That's why surety underwriting looks at credit, financial statements, experience and capacity. Smaller license and permit bonds may need little more than an application, while contract bonds for larger projects often require CPA-prepared financials and an established bonding line. Tell us which bond you need and who is asking for it, and we'll help you gather what the surety needs. Bond options depend on your business, location, licensing requirements and surety availability.

Types of bonds

Terms depend on the bond form and surety.

License and permit bonds

Required by many states and municipalities as a condition of a license or permit. They assure the obligee that you will follow the applicable laws and regulations.

Bid bonds

Submitted with a bid to show the owner that, if awarded the job, you will sign the contract and provide the required performance and payment bonds.

Performance bonds

Assure the project owner that the work will be completed according to the contract terms.

Payment bonds

Assure that subcontractors, laborers and suppliers on the project will be paid. Commonly required on public work.

Maintenance bonds

Some contracts require a bond for a set period after completion, backing your obligation to correct defects in materials or workmanship.

Commercial bonds

A broad category that includes utility deposit, customs, court and fiduciary bonds, and other obligations required by a contract, court or agency.

Freight broker and forwarder bond (BMC-84)

One way property brokers and freight forwarders can meet FMCSA's $75,000 financial security requirement; a BMC-85 trust fund is the alternative. Requirements depend on the type of authority, and household goods forwarders also need a cargo filing.

What to watch for

Personal indemnity: owners, and often their spouses, are commonly asked to sign the general indemnity agreement, making them personally responsible for repaying bond losses.
Owner-drafted bond forms with terms broader than standard wording. Review them before you bid.
Bonding capacity limits on single jobs and your total work program, which can cap how much work you can take on at once.
Financial statement quality: reviewed or audited statements may be required as bond sizes grow, and late or weak financials can delay approval.
Expiration, cancellation and renewal dates. A lapsed license bond can affect your license, and FMCSA can suspend broker or forwarder authority when the required financial security isn't in place.
Treating a bond like insurance. Claims the surety pays are typically expected to be repaid.

What affects price and eligibility

Bond type and the bond amount required
Personal and business credit history
Financial strength, including working capital, net worth and cash flow
Experience, completed project history and backlog for contract bonds
Prior bond claims or losses
Collateral or additional indemnity provided

Helpful information for a bond request

Have what you can — we'll ask for anything else the surety needs.

The bond form or written requirement from the obligee, showing the bond type, amount and wording
Business name, address, ownership details and formation documents
Owner information and permission for a credit review
For license and permit bonds: the license or permit you're applying for and the agency issuing it
For contract bonds: the contract or bid documents, a work-in-progress schedule and a list of completed projects
Business and personal financial statements, if requested; larger contract bonds often need CPA-prepared statements
For freight brokers and forwarders: your USDOT and MC numbers, or your pending FMCSA application details

Start with the bond form or written requirement you received. The surety may ask for more detail, such as financial statements, depending on the bond type and amount.

Written by ALP Insurance

Who typically needs it

Contractors bidding public or private projects that require bid, performance and payment bonds
Businesses that need a license or permit bond to obtain or renew a state or local license
Freight brokers and freight forwarders that need FMCSA financial security, such as a BMC-84 bond
Auto dealers, home improvement contractors and other licensed trades with bonding requirements
Businesses asked for commercial bonds for utility deposits, customs or contract obligations
Growing contractors who need more bonding capacity to take on larger jobs

Talk it through with an agent

Not sure what you need? Start a request and choose "Not sure" — a licensed ALP agent will talk through the options with you.

Request a bond

Industry guides

Surety Bonds FAQs

How is a surety bond different from insurance?

Insurance spreads risk across many policyholders and is designed to pay losses. A surety bond works more like credit: the surety backs your obligation, but you and any indemnitors are typically expected to repay any valid claim it pays.

Do I need good credit to get bonded?

Credit is a major factor, especially for license and smaller commercial bonds. Some sureties work with lower credit scores, often with different terms or collateral, so it is worth reviewing options.

What is a bonding line?

A bonding line is the single-project and total amount a surety is willing to support for a contractor. It is based on your financial statements, experience and work in progress, and it can grow as your business does.

What is a BMC-84 bond?

It is a $75,000 surety bond that property brokers and freight forwarders can use to meet FMCSA's financial security requirement for their operating authority, and the surety files it with FMCSA. A BMC-85 trust fund is the alternative, requirements depend on the type of authority, and bond underwriting typically considers credit and industry experience.

How long does it take to get a bond?

Many license and permit bonds can be issued quickly once the application and credit review are complete. Contract bonds and larger commercial bonds take longer because the surety reviews financials and project details.