Every serious business will take all necessary measures to protect themselves from a fraud or contract violations. Things get even more serious when the business in question represents the
government. If you want your home business or any other enterprise to do projects for the government, you have to know what you should expect. The first surprise that awaits you at the threshold of every government agency are surety agencies and their bonds.
Who do they include?
The main purpose of surety bonds is to ensure that all the interested parties in every agreement do their share of work properly and on time. Those interested parties are known under three special, code names: the surety, the principal and the obligee.
- The surety
Sureties are entities that issue bonds. Every surety agency needs to be licensed by the government of the state in which it works. The surety makes sure that the principal does not make any contract violations against the obligee. They are a guarantee that the principal will do their work in accordance with the contract.
- The principal
If you are a business owner, you would be the principal in this story. Unless you start stalling and breaking deadlines, you have nothing to be afraid of. Businesses that finish their tasks on time will not cause any expenses to their sureties. However, failing to work in line with the agreed requirements can shake the foundations of your business and you could even go bankrupt.
- The obligee
The obligee is the boss in this process. They hire both the surety and the principal. On one side, both these parties work thanks to the obligee. On the other side, if the principal does not fulfill their share of the agreement, the surety has to pay the claim to the obligee. That way the obligee has assets to hire a new principal that will finish the work.
How can principal go bankrupt?
What every business owner that agrees to such a contract should know is that bonds are a powerful tool. They truly protect every side in any bond-enhanced project. While bonds are a must only in deals with the government, private businesses can also require such a guarantee. But what happens if you fail to adhere to the agreed terms and break the deadline or do anything against the terms fot he contract? Firstly, the surety will pay the claim, but only after they have proven that you have violated the deal. Secondly, if your business has breached any regulations, you will be charged by the surety.
Bad credit score
Businesses that have proven to be inaccurate and irresponsible in finishing their projects will have worse credit score. What surety companies are aiming at when they are asked to grant bonds to principles are businesses with meticulous credit score. In order to find out everything about your previous projects and success, they will check your credit rating. Businesses that have any liens, debts or unpaid taxes will hardly qualify to work on a project for the government.
On the other side, while it is possible to get bonds and start working with lower credit score, such businesses will have worse conditions for bonds. As a result, if they fail to deliver the required results, they will be charged at higher rates, too.
What benefits do bonds bring?
An average John Doe business owner will ask themselves why to work with sureties in the first place. The greatest advantage of surety bonds is the fact that they force all the three sides in every project to do their share of work. If any of the parties tries to violate the contract, they will have to pay for their breaches.
When you look at alternatives, it is crystal clear that this way of bonding is the least expensive. For instance, you can pay cash directly to your obligee, as a form of the deposit payment. It will guarantee that you will finish your work on time. However, hardly any small business has enough cash for such deals. Also, the guarantee could be your asset, too. Still, all these alternatives incur too much risk for an average business owner. On the other hand, surety agencies provide a guarantee on your behalf.
Having a surety agency by your side is the closest you can get to a perfect solution for your business. The rules are simple in this game; if you do not mess up, you will feel only the beneficial side of surety bonds. Your risks are much lower with a mediator in the game and the obligee is also fully protected. Make sure to finish your business tasks on time and feel free to collaborate with surety agencies.
Of course, you will want to find those that you can trust.