Commercial vs. Contract Bonds

contract bonds vs commercial bonds

Commercial and contract bonds serve a similar purpose in that both types of bonds provide protection for one of the parties named in the bond, but they also have unique purposes that are tailored to the industries they are used in.

Contract and Commercial Bonds Share Some Key Features

Let’s start with the similarities between the two types of bonds. The basic contract in a surety bond always contains three parties:

 

  1. The principal who is the business or individual purchasing the bond
  2. The obligee who is the agency, business or individual who requires the bond
  3. The surety who is the underwriter of the bond

 

All bonds provide a form of credit that acts as a financial guarantee allowing the obligee to claim against the bond. As credit, not insurance, the bond principal is required to reimburse the surety for all claims made against the bond.

Contract and Commercial Bonds Also Have Some Key Differences

Beyond the basic similarities, contract and commercial bonds are used for very different purposes. For example, commercial surety bonds are used to ensure that a business or individual complies with all state regulations and acts honestly. Commercial bonds are commonly needed to secure licenses, used to protect a state from financial loss, or required by a court ruling. Some of the most well-known uses of commercial bonds are car dealership bonds. These bonds help to ensure that the dealerships act honestly, as they can be claimed against if a dealer fails to follow state laws. Other industries that often use commercial bonds include liquor retailers, private schools, financial advisors, and commercial sales. If your industry requires you to maintain a license for your business, then you’ll likely need to be bonded.

 

Contract bonds are generally found in the construction industry. These construction bonds provide a financial guarantee for contracts used in construction including project bids, construction jobs, and goods/service supply agreements. This means that if the terms of a contract are not met then the wronged party can make a claim against a bond. If you work in the construction industry and need protection for an upcoming contractual agreement then a contract bond is the right option for you!

 

Viking Bond Service can help you find the right bond based on your individual needs. Call our licensed agents today to discuss your options!