If you regularly engage in the contract business, you’ve probably heard of surety bonds. They have become a regular component of most businesses due to the security that they provide to service recipients, and the credit they extend to service providers.
Indiana surety bonds have become a regular requirement in the service, construction, transportation and motor vehicle industries. By protecting service recipients from damages suffered as a result of an unfulfilled contract, they make the business industry operate with increased efficiency.
What Are Surety Bonds?
In the simplest terms, a surety is a contract that is signed by three separate parties. It is meant to protect the recipient of service from incurring any damages caused by a service provider’s failure to fulfill the terms of a contract. Therefore, when a person or entity seeks a service from another individual/business, they often need an assurance that the service provider will fulfill what has been agreed upon.
If the service provider fails to carry out the job as expected, the service recipient can claim the bond and be compensated for any damages incurred.
In the bond contract, the service recipient is referred to as the obligee, and the service provider is the principal. When an obligee requests a bond from a principal, the principal will obtain the bond from an insurance company (referred to as the surety). This company will agree to honor any claims made against the bond by the obligee, and later seek compensation from the involved principal.
When a principle applies for a bond from a surety, they need to demonstrate an ability to compensate the surety if a claim is made against the bond by the obligee.
Bonding Is One Part Credit, One Part Insurance
Getting bonded in Indiana serves two important dynamics in business transactions. First, they are an extension of credit to the principal. This is because when claims are made by an obligee, the surety company honors the claim and later seeks compensation from the engaged principal. The principal, therefore, does not have to incur hefty out-of-pocket expenses when a claim is made against them. Sureties are normally provided at a fraction of the full cost that would be incurred to pay a claim (typically between 1%-15% of the bond’s face value). As a result, the principal would only incur a fraction of the cost that it would take to compensate the obligee.
Secondly, Indiana bonds provide insurance to the obligee. When an obligee seeks a service from the principal, they maintain peace of mind knowing that they can claim the bond should the involved principal fail to adhere to the contract. The claim is also fulfilled by a surety, giving the obligee assurance that a valid claim will be honored.
Types of Surety Bonds
The useful nature of these bonds makes them a business essential. They are used in many different industries to protect obligees from damage, and principals from costly claims. Some of the most common Indiana bonds include:
- Vehicle merchandising bond – people working in the auto industry, such as manufacturers and dealers, are required to obtain this kind of surety for their operations. This bond assures that the merchandiser will follow all the laws that surround the issuing of a license. The bond can be used to honor any fines, penalties and fees that result from code violations by the merchandiser.
- Contract bonds – contractors in Indiana who undertake public construction projects are required to obtain a contract bond. This bond protects the owner of the construction project from any damages that the contractor may cause due to negligence or not fulfilling the job according to expectations. Public projects that are for the state or federal government often require this bond to safeguard taxpayer dollars.
- Collection agency bonds – in Indiana, companies that act as debt collectors for a third party are normally required to obtain a collection agency bond. This bond ensures that the collection agency will follow the established regulations for debt collection as required by the state. Indiana code specifies that the agency should only carry out its collection tasks after receiving a license, that they will forward all collected payments to their clients within 60 days, and that all money collected by the agency is deposited in a depository every week.
- Notary bond – people who administer oaths and oversee the signing of legal documents are required to obtain a notary bond. The bond ensures that the notary will strictly adhere to the rules that govern notaries within the state of Indiana. When a notary violates the Indiana code, they could be removed from their position and have a claim made on the bond.
Obtaining a Surety Bond in Indiana
The process of getting bonded in Indiana has been made quick and efficient due to advancements in technology. Many professionals and businesses can now begin the process of obtaining a bond by simply calling or logging on to the website of a surety (bond provider). Most bond providers allow online applications for most types of bonds, including NFP. Fill out our quick and easy online application and get a free quote.
When applying for a bond, you will typically fill out an application that requests for your profession, information about your business, your financial status and the bond that you wish to apply for. A surety may also carry out a credit check to ascertain your creditworthiness.
A surety bond typically costs between 1%-15% of the face value of the bond. Before applying for an Indiana bond, it is important to work closely with the bond provider to get the right bond for your business and obtain the best rates available. Let our team of bonding experts help properly bond you and your business today.