Your Guide for Commercial Bonds

What Are Commercial Surety Bonds?

A commercial surety bond is a legally binding agreement that guarantees someone will perform a duty required by law or contract. These bonds are often mandated by courts, municipalities, or state agencies.

The three parties involved in commercial surety bonds include:

Principal – The person or business required to obtain the surety bond (e.g., contractor, executor, auto dealer).
Obligee – The entity requiring the bond, such as a court or state licensing board.
Surety – The bonding company that guarantees the principal’s compliance and pays valid claims if they fall short of their obligations.

Obligees and other affected parties can file claims against a principal’s bond if they fail to fulfill their legal or contractual obligations. After investigating and verifying these claims, the surety company will cover losses up to the bond’s amount. The principal must then repay the surety.

How Commercial Surety Bonds Differ from Contract Bonds & Fidelity Bonds

While all surety bonds involve the same three-party agreement, they serve different purposes. Here’s a brief overview of the differences between commercial surety bonds, contract bonds, and fidelity bonds:

	Commercial Surety Bonds	Contract Bonds	Fidelity Bonds
Purpose	Ensure compliance with laws, court orders, or licenses	Guarantee proper completion of construction contracts	Protect employers and their customers from employees’ theft or fraud
Common Users	Auto dealers, executors, guardians, tax preparers, etc.	General contractors, subcontractors	Banks, retail businesses, nonprofits
Examples	Court bonds, license bonds, miscellaneous bonds	Bid bonds, performance bonds, payment bonds	Employee dishonesty bonds, business service bonds

Learn More: 10 Most Common Questions About Commercial Surety Bonds Answered

Who Needs a Commercial Surety Bond—and Why?

Many types of people may require commercial surety bonds at some point in their lives. Here are just a few common examples:

A contractor disputing a lien may need a release of lien bond to keep their project moving forward on schedule.
An executor managing an estate may need a probate bond to assure heirs that they’ll distribute their assets lawfully.
Businesses applying for professional licenses, such as auto dealers, mortgage brokers, or contractors, must often post a license bond to operate legally.
A taxpayer appealing a tax judgment may need an appeal bond to pause collections during their case.
An importer may need a customs bond to guarantee their duty payments and compliance with the U.S. Customs and Border Protection’s regulations.

While commercial bonds come in many varieties, they all share the same overarching purpose: they protect parties that may be harmed by the principal’s failure to fulfill a legal or contractual duty.

Meanwhile, the benefits commercial surety bonds provide to businesses include:

Legal compliance – Many industries and courts don’t allow businesses or individuals to operate without a surety bond in place.
Financial security – While surety bonds don’t protect the principal directly like insurance policies, they help principals avoid costly penalties, fines, or business interruptions that could arise from noncompliance.
Reputation and trust – Being bonded indicates that the principal is reliable, professional, and accountable.
Access to opportunities – Some contracts or licenses are only available to bonded parties, often making them a bridge to broader or more lucrative opportunities.

What Types of Commercial Surety Bonds Exist?

There are many types of commercial surety bonds, but most fall into a few key categories. Here are the most common ones:

Court bonds are required by judges to ensure someone fulfills their court-related duties.
Appeal bonds (a.k.a. supersedeas bonds) guarantee that someone appealing a judgment will pay it if they lose.
Guardianship bonds ensure that legal guardians manage the finances or care of a minor or incapacitated adult responsibly.
Probate bonds (a.k.a. executor/administrator bonds) make sure that an estate’s administrator will distribute its assets properly.
License & permit bonds ensure that businesses comply with state or local licensing laws and operate ethically within their industry.
Business service bonds protect customers against theft and other dishonest acts committed by employees working in clients’ homes or businesses.
Customs & federal bonds ensure that businesses importing goods, transporting freight, or engaging in regulated federal activities pay their duties and fees and comply with federal law.
Miscellaneous bonds are commercial bonds that cover specialized obligations that fall outside these categories, such as utility deposit bonds or fuel tax bonds.

Learn More: The Important Role of Surety Bonds in Professional Licensing

What Are Common State-Specific Commercial Bonds?

States typically set their own commercial bonding requirements. Here are just a few examples:

California: What Are the CSLB Contractor License Bond Requirements?

In California, contractors must post a $25,000 license bond with the California State License Board (CSLB) to operate legally. This bond protects project owners, the public, and the state against financial losses resulting from a contractor’s failure to comply with state license laws, complete work according to contract terms, or pay employees and subcontractors on time.

Texas: Who Needs a Sales & Use Tax Bond?

The Texas Comptroller requires businesses that collect sales tax to secure a Sales & Use Tax bond that is the greater of $100,000 or four times the amount of their average monthly tax liability. This bond guarantees that these businesses pay their state taxes in a timely manner.

Florida: How Do I Obtain a Public Adjuster Bond?

Public adjusters in Florida must file a $50,000 surety bond with the Department of Financial Services. This bond ensures that adjusters handle their claims ethically and in compliance with state law.

New York: What Rules Govern Towing & Storage Bonds?

Towing and storage companies in New York must secure bonds to protect consumers against improper practices and guarantee their payment of fees or damages in disputes. Towing vehicle companies require surety coverage of at least $5,000, while storage warehouse operators must file surety bonds of $10,000.

Georgia: What Are the Auto Dealer Bond Requirements?

Auto dealers in Georgia must post a $35,000 license bond with the Georgia Board of Used Motor Vehicle Dealers. This bond protects consumers by ensuring they can receive compensation if a dealer commits fraud, misrepresentation, or fails to properly pay required taxes or fees.

Frequently Asked Questions (FAQ)

Q: How is my bond premium calculated?

A: Your bond premium depends on two main factors: The required bond amount set by the state, court, or agency, and your personal credit and financials. Bond premiums typically range between 1% and 10% of the total bond amount. If you have good credit, you can often qualify for lower rates.

Q: Can I get bonded with poor credit?

A: Yes. Even if you have bad credit, you may be eligible for certain bonds. At BOSS Bonds, we work with over 25 surety carriers, so we can match you with flexible bonding programs. Just keep in mind that you may need to pay a higher premium due to your poor credit profile.

Q: What’s the typical surety bond approval time?

A: Many commercial bonds can be issued the same day you apply. Bonds that require more detailed financial reviews, like larger court bonds, may take longer. Luckily, BOSS Bonds can help expedite the process.

Q: What happens if a bond claim is filed?

A: If a valid claim is filed against your bond, the surety company will pay the damages up to the bond’s full amount. After that, you’re responsible for reimbursing the surety.