Generally all small businesses in the construction, manufacturing and service industries are eligible for the Small Business Association (SBA) Surety Bond Guarantee Program, provided the business has attempted and failed to obtain any required bonds in the standard surety market.
A bond acts as a three-way agreement between the Surety, the Principal (who is the contractor or applicant), and the Obligee. Obligee is a technical word for a beneficiary who might be the project owner, government agency, or some other entity.
The surety company in New Jersey is the party standing behind the performance of the principal and is providing their stamp of approval with a surety bond. If for any reason the principal is unable to satisfy the terms of their agreement, then the surety assumes the responsibility and reimburses the obligee.
How bonds typically work
Bonds are essentially considered a specialty form of insurance, and the surety is treated like an insurance company. Bonds however are very different than insurance, simply because the beneficiary is a third party. As long as the principal does what is agreed to, in terms of work performed, meeting deadlines, and completing the job as promised, the surety will not be called upon to perform or pay for any incomplete or poorly performed work. The surety has evaluated the principal’s ability and willingness to perform and believes they can deliver on the contract.
Surety companies evaluate financial information, including the detailed credit history of the contractor’s company, and it’s principal owners, along with management’s prior experience. Based on their evaluation, the surety company will not only be able to assess a principal’s ability to pay or perform as agreed, but the surety will also be able to determine the principal’s willingness to fulfill that promise.
What is indemnity?
The indemnity agreement is a legal document that fully discloses the principal’s obligations and gives the surety company in new jersey the right to recover any losses paid out on behalf of a principal in the event they wind up failing to perform.
Surety bonds provide small contractors with numerous benefits as well. These types of bonds help level the playing field by allowing a small contractor to compete in the free market against larger, often more experienced competitors, leading to lucrative contracting opportunities for all parties.