They have become a regular requirement in most businesses across North Carolina. The popularity of surety bonds arises from their usefulness in guaranteeing the services offered by many businesses. In fact, most service providers licensed by the state are required to be bonded. Contractors, motor vehicle dealers and even plumbers often need to issue a surety bond to their customers to protect them from any risks and losses they can incur as a result of negligence on the part of the service provider.
Surety bonds North Carolina are therefore useful for businesses as well as their customers. They provide a level of security for customers while extending credit to businesses that provide various services. It is therefore important to understand what sureties are and how they work.
What Is a North Carolina Surety Bond?
A surety is a legal agreement signed by three parties: the principal, the obligee and the surety. The principal is the person/business that is providing a particular service, while the obligee is the recipient of the service. When an obligee seeks the services of a principal, they will typically want to make sure that the principal can guarantee them that they will fulfill the agreements stipulated in the contract. Obligees are usually at risk of the negligent services of a principal. For example, if the principal does not deliver the services to the expectations of the obligee, the obligee can end up suffering damages, including financial loss.
A bond is therefore used to provide protection to the obligee against any damages they are likely to incur. In the event that the principal violates the contract, the obligee can make a claim against the bond and be adequately compensated for their losses. Most obligees will request a surety bond from the principal while the contract is being negotiated.
When an obligee requests a bond from the principal (business), the business will apply for one from an insurance company referred to as the surety. When the surety issues a bond to the business, they are basically promising the business that they will compensate the obligee in the event that the obligee makes a claim against the bond.
The surety and the involved principal will, therefore, negotiate the terms of the bond (such as the bond amount and premiums to be paid). When an obligee makes a claim and the surety honors that claim, the principal will be responsible for paying back the surety at a later date.
Part Credit, Part Insurance
North Carolina surety bonds serve two important roles: they are partly an extension of credit to the involved principal, and partly insurance to the obligee. How is this so? With sureties, the obligee can have peace of mind when seeking the services of a bonded principal. This is because they can make a claim against the bond if the principal fails to hold up their end of the deal.
On the other hand, the engaged principal enjoys an extension of credit by the surety. This means that they don’t have to suffer high out of pocket expenses when they have to honor a claim made by an obligee.
Types of Surety Bonds
Bonds are commonly used in many businesses across the state. Some of the most common types of bonds issued in North Carolina include:
- Landscape contractor bonds – all licensed landscape contractors in the state are required to issue a $10,000 bond. The bond ensures that all contractors will abide by the rules stipulated in the North Carolina General Statutes regarding their profession. Landscape contractors who fail to adequately fulfill their duties may have a claim made against the surety bond for damages incurred.
- Lottery bonds – lottery retailers in North Carolina are typically required to be bonded when carrying out their services. The bond ensures that retailers will properly remit payments from the sale of lottery tickets to the required parties, and as specified in the contract. Retailers who commit fraud or omissions may have a claim made against the surety to have the state and consumers compensated for damages incurred.
- Insurance broker bonds – all insurance brokers in North Carolina are required to post a $15,000 bond before they can begin operating. Insurance brokers are responsible for selling insurance policies to customers. It is therefore important to protect customers from the actions of fraudulent or negligent insurance brokers who may be committing malpractices when selling insurance policies. Any malpractices committed by the insurance broker can lead to claim being made against on the bond.
How to Get Bonded in NC
If you need a bond for yourself or your business, you can apply for one from a surety company. Obtaining a bond for your business demonstrates a level of professionalism, trust and responsibility on your end. The process of applying for a surety has been made easier due to advancements in technology. You can now apply for a surety online or via the phone.
What you will need is information about yourself and your business, the type of bond that you require, and your financial information. The surety company will then review your application and determine your eligibility for a bond. A credit check may be necessary to ascertain credit worthiness for the application.
The surety company will then determine the bond amount you qualify for, as well as the amount you will be paying in monthly premiums. The good thing about surety bonds is that you will only need to pay a fraction of the face value of the bond. In North Carolina, most bonds are priced at between 1-15% of the bond’s face value.
Be sure to work closely with our team in order to access the right type of bond for your needs and at the best rates available.