The smooth operation of business processes in Tennessee is made possible by the presence of sureties. Tennessee surety bonds have become an important component of most business contracts within the state, because they offer security to customers by guaranteeing safe, quality and reliable services.

Sureties are also useful to service providers because they act as an insurance policy against the services that they offer. In the event that a service provider fails to honor a contract, the surety can act as an extension of credit to the service provider to compensate any damages that they may cause. A surety bond Tennessee can be used in many different industries, ranging from the motor vehicle industry to tax services and public construction projects.

Before diving into specific types of bonds and their effects on various industries, it is important to understand what bonds are and how they work. Continue reading, or simply reach out to our team for any questions you might have.

What Are Sureties?

A surety, in its simplest terms, is a guarantee. It is a legally binding contract issued between three parties- the principal, the obligee, and the surety. The principal is the company that needs to issue a guarantee for its services to the service recipient (the obligee). When an obligee requests the services of a principal for a particular purpose, the obligee may need to be guaranteed that the services they have requested will actually be fulfilled according to the contract.

For example, a construction company (the principal) often needs to offer some form of assurance that they will complete the project requested by the property owner (the obligee) to the expectations that have been agreed upon. The principal therefore issues a surety to the obligee to assure them that they will carry out the required work correctly or else the obligee can make a claim against the bond.

The Surety Honors Claims Made Against the Bond

When a principal requires a surety, they often receive it from a third party company called a surety. The surety is an insurance company that specializes in issuing bonds to different individuals as well as companies. When a principal applies for a bond from a surety, they are extended a certain amount of credit that they can use to compensate an obligee in case a claim is made on the bond. The surety and the principal can then work on a method of repayment, where the principal will pay back the surety should the surety have to honor a claim.

Sureties Are Part Credit, Part Insurance

A Tennessee surety bond therefore serves as part credit to the principal, and part insurance to the obligee. The obligee can enjoy peace of mind when they enter into a contract with the principal, knowing that any negligence or violations of the contract will be compensated by the surety.

On the other hand, the principal will not have to suffer any costly out of pocket expenses in case they have to deal with a claim made by the obligee. The surety will initially handle and honor the claim, and the principal can compensate the obligee at a later date. In fact, most principals only have to pay a fraction of the face value of Tennessee surety bond (typically 1%-15%) in the event that a claim is made.

Types of Bonds

Because bonds are so important in business transactions, many different types of bonds are used across multiple industries. In all their different forms, they still maintain the same basic principle: protecting the obligee against damages and extending credit to the principal. Some of the most commonly issued surety bonds Tennessee include:

  • Alcohol tax – Tennessee requires businesses that sell alcoholic beverages on their premises to obtain an alcohol tax bond that amounts to $10,000. This bond protects the state from damages they can incur as a result of a business failing to adhere to the Tennessee code governing the sale of alcohol. The bond also ensures that property owners pay all required state and sale taxes, as well as penalties. In case the business fails to honor these code requirements, a claim can be made against the bond.
  • Home improvement contractor license – contractors who work in the home improvement sector (installing driveways, swimming pools, roofing, etc.) are required by the state to obtain a $10,000 surety for their services. This protects homeowners from damages they are likely to face as a result of negligence or harm caused by the contractor while working on the project.
  • Certificate of title – Vehicles owners in Tennessee who do not have a certificate of title for their vehicles are required to obtain a certificate of title bond. This bond protects the state and the public from financial losses that are likely to occur if a new title is needed to be issued for the vehicle. The amount of the bond should be equal to the most recent appraised value of the vehicle. If the owner of the car ends up causing a situation where a new title for the vehicle must be issued, a claim will be made against the bond and the surety will incur the costs of the claim (to be later reimbursed by the principal).

Getting Bonded in Tennessee

In order to obtain a bond in Tennessee, you need to apply with a licensed bond provider. Surety companies offer many different types of bonds, and they can work with you to identify the bond that suits your needs. That’s what we do best. Fill out the online application, or call us at 800.863.3210.

When filling out an application, we’ll ask for the type of bond you need, your profession, financial history and references. The surety will use this information to determine the bond amount and premiums that you qualify for. A credit check may also be necessary to ascertain your credit worthiness. If you’re not sure which bond you need, take a look at the list of commonly requested bond types below or give us a call.

We have been helping people get bonded in Tennessee since 1984. We can help bond you the same day, depending on the bond type. Call us to get started or complete our online application. If you prefer, you can download an application to complete and email to our bond agency for processing.

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