A surety bond is a contract that legally binds three parties to an agreement. The three parties involved are the surety firm, the principal and the obligee. The surety is a company that processes the bond. The person or organization that applies for the bond is the principal. The obligee is the party that requests for the bond. It gives a guarantee that the principal will stick to the terms of the contract. You can buy bonds from any of the dependable Rhode Island Surety Bond company.
How Do Sureties Work?
First of all, the principal approaches a surety company of their choice and formally makes an application. The brokerage firm examines the application, and if satisfied, they issue the applicant with the surety. If you have a good credit score, are financially stable and are experienced in business, you are in the best position. Poor credit bonding programs are also available.
Performance and Default
If the principal fulfills the requirements of the bond, the process ends. However, if they default, the procuring entity writes a contract cancellation notification to them. The contractor should address the non-performance in ten days. If they still fail, the contract is canceled. Moreover, any other subcontract may be cancelled. Additionally, the state may bar them from bidding in future. Therefore it is vital to perform work satisfactorily.
Types of Surety Bonds in Rhode Island
There are numerous types of sureties. The specific purpose of the bond determines the type of bond you need. Choosing the right type of bond may not be easy. It is advisable to consult with a surety bond company for guidance in making the decision. Our team excels at providing information, answering question and getting the bonds our clients need.
There are two main categories of bonds – commercial bonds and contact bonds. These are broad divisions, and under each there are several types of bonds that you can choose from.
- License and permit – to operate most types of businesses legally, you need a license. If you are a construction contractor, an auto dealer or a mortgage broker, you need it. Requirements vary across states. You need to confirm with a reliable Bonding company on the specific requirements in your state.
- Construction – these fall under contract bonds. Construction contractors often need to obtain this type of bond before the state, municipality or town council can consider their bid for a given construction project. You should submit it together with the rest of the contract bidding documents.
- Appeal – these fall under commercial bonds .If you are a defendant, you are allowed to appeal a court judgment. You will need to provide an appeal bond before the appeal process starts. This assures the court you will avail the judgment amount even if you go bankrupt.
- Fidelity – according to SBA (Small Business Association), fidelity bonds “are like insurance.” They are designed to protect you against acts of fraud or dishonesty by employees.
- Fiduciary – according to the National Law Review, a fiduciary bond is a legal instrument that protects the interests of beneficiaries, creditors and heirs. These three parties are protected if and when a fiduciary does not act honestly and/or competently. A fiduciary is a party that owes another party a certain level of responsibility. A good example of a fiduciary is an executor.
This list is not exhaustive so if you have questions about other types of bonds, give us a call.
How Can a Fidelity Bond Help You?
Suppose you own a maid service and one of your employees steals from a client. Your bonding company will reimburses you the value of the stolen item(s). You will then reimburse your customer. This would make your customers gain more confidence in you and your company. They are more likely to refer business to you, and less likely to share a negative review.
Industries that Require Surety Bonds in Rhode Island
Some of the industries that require sureties are:
- Auto dealerships – if you plan to establish an auto dealership in RI, you must seek licensing. The state government processes this license. You are required to provide a surety before they can process it. It guarantees that you will fully comply with all the regulations relating to the industry.
- Construction – contractors working on public contracts need to secure a surety during the bidding process. The state of RI requires all bidders to provide a bid bond or check amounting to 5% of their bid. Alternatively, the bidder may avail a bid matching what the beneficiary requires in the solicitation.
- Energy – utility companies require their customers to provide a utility bond before they can access the utilities. This bond insures the company against the risk of non-payment of bills.
- Manufacturing – if you are a mobile home manufacturer, for example, you will need to get a mobile home manufacturer bond.
Getting Bonded in Rhode Island
You need to fill out an application with a reliable bonding company. Your credit score, experience in business, and financial capability are some of the factors that guide the company in their assessment.
Finally, there are many business situations where bonding is needed. There are hundreds of sureties to choose from. Moreover, bond requirements may vary from state to state, making the buying decision confusing. Visit a reliable company licensed in Rhode Island, such as NFP. We provide affordable surety and fidelity bond insurance. Each bond is prepared on a specific Rhode Island bond form, as prescribed by the entity requiring the bonding. Apply for your bond now by filling out the online bonding application.