If you are not familiar with what an Oklahoma surety bond is, it can seem a bit complicated to understand at first. Essentially, a bond is a contract between three entities or individuals. Those individuals consist of a surety, a obligee and a principle. The bond acts as insurance for the obligee by saying that if the principle does not do what they promised, they will be reimbursed by the principal or the surety. We’ll break this down a bit more below.
What Is a Surety?
The entity that is the surety is traditionally an insurance company or bond company. They back the bond financially. In a case where the principal does not provide what they promised to the obligee, the surety will be required to pay back the amount of the bond if the principal cannot do so. As such, the person who is the principal must pay a premium to the surety, but this is not the entire amount of the bond.
What Is a Principal?
As a principal, you are the person who is required to obtain a bond. In most cases, the principal is a construction contractor or a business applying to get a license to open. They will then acquire an Oklahoma surety bond before they can start work on the proposed project.
What Is an Obligee?
The person, business or institution that is the obligee is the party who is requiring that a principal gets a bond. This is often ahead of getting a permit or license. In many cases, the obligee is a government agency that uses Oklahoma surety bonds in order to regulate a specific industry, such as construction.
How Do Surety Bonds Work?
Many people believe that a surety is business insurance, but this is simply not true. Insurance is a product that protects the person who purchases it, while a surety offers security for the party requesting the bond. It is also intended to offer protection for the general public.
In a case where the one who obtained the bond cannot meet their obligations and a claim is filed, the surety will be required to pay the obligee up to the entire amount of the surety. As such, a bond can be seen as a form of credit that the principal receives from the insurance agency or surety. Of course, after a surety takes care of any claims, the involved principal shall be required to pay them back.
Types of Surety Bonds in Oklahoma
Most sureties would be considered license and permit bonds, which are also known as commercial bonds. These sureties are required as part of licensing for many business types, including telemarketers, collection agencies, contractors and mortgage brokers. With this particular type of bond, the guarantee says that the person or business will abide by all required regulations and rules of a business license.
Contract bonds are another type of Oklahoma surety bonds and these ensure that a construction projected is completed to proper standards as well as any terms found in the contract for construction. There are several contract bonds that include bid bonds, performance bonds, supply bonds and payment bonds. These protect the government as a project owner, as well as laborers, subcontractors and similar individuals.
You can easily determine the difference between a commercial bond and a contract bond by determining if the bond is required for licensing or for a specific contract. The former will be a commercial bond, while the latter option is a contract bond.
How Much Is a Bond Premium?
The premium is part of the total bond amount, which is paid by the principal at the time the bond is drawn up. There are actually a number of items that go into determining the premium, but the largest indicator is the credit score of the person applying for the surety.
A person who has great credit will often pay an amount of around one or two percent for the bond premium, while someone with a less excellent credit score might pay up to 10%, instead. This will also vary depending on other information, as well as the choice of surety by the principal.
What Is a Bond Claim?
As a principal, you want to avoid claims as much as you are able to. However, if a problem comes up that cannot be resolved, an obligee can choose to file a claim against the bond the engaged principal purchased. After a claim is filed, the underwriter of the bond will be required to open an investigation. At this point, the surety will go over the bond agreement and any evidence that the principal did not hold up their end of the bargain.
In the case where a claim is legitimate, the engaged principal and surety are required to either rectify the situation or offer compensation to the obligee. The actual requirement depends on the type of bond that has been established. While a surety might cover a claim in the beginning, it is a principal who is responsible for it in the end.
What Are the Benefits of Being Properly Bonded in Oklahoma?
You likely have a good idea of what a bond is at this point and why it is an excellent option for everyone involved. It provides a means of protection for the obligee, but also provides benefits to the involved principal in that they do not have to put down as much money to take a contract. There is also a surety there to avoid any fraudulent claims that might otherwise be accepted. This allows you to keep your business capital unless something goes awry, which is just what the bond is for.
Our team provides affordable bonding solutions. Every Oklahoma bond is prepared on a specific Oklahoma bond form, as prescribed by the entity requiring the bonding (known as the obligee). Below is a list of commonly requested bond types in Oklahoma. If you’re ready to be bonded in Oklahoma, call our office, ask questions and apply for your bond.
- Mortgage Broker
- Private Investigator
- Process Server
- Sales Tax
- Defective Lost Title
- Utility Deposit