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Surety Bond Types: What Types of Surety Bonds are Available?

There are two main categories of surety bond: Contract Bonds and Commercial Bonds. Contract bonds guarantee a specific contract. Examples include Performance Bonds, Bid Bonds, Supply bonds, Maintenance Bonds and Subdivision Bonds. Commercial Bonds guarantee per the terms of the bond form. A third type of bond sometimes classified as a "policy" that protects against theft is called a Fidelity Bond. Read on to learn more about common types of bonds.

Common Contract Bond Types:

Performance Bonds

A Performance Bond is a surety bond issued by an insurance company to guarantee satisfactory completion of a project by a Contractor. For example, a Contractor may be required to post a Performance Bond in favor of a client for whom the Contractor is constructing a building. If the Contractor fails to construct the building according to the specifications provided in the contract, the client is guaranteed compensation for monetary loss up to the amount of the Bond. The Surety will generally bring in a replacement Contractor to finish the project.

Payment Bonds

Payment Bonds are generally issued along with Performance Bonds to guarantee payment of Sub-Contractors and suppliers in accordance with a specific Bonded project.

Bid Bonds

A Bid Bond guarantees that a Contractor who is awarded a project on which he placed a bid will be able to post a Performance Bond as required and proceed with the project.

Common Commercial Bond Types:

License Bonds

License and Permit Bonds are a general class of surety bond required of a person or entity to obtain a license or a permit in a city, county, or state. These bonds guarantee whatever the underlying state statute, law, municipal ordinance, or regulation requires. Some common examples of License Bonds are:

• Contractors License Bond
• Auto Dealer Bond
• Mortgage Broker Bond
• DMEPOS (Medicare) Bond
• Liquor Bond
• Utility Deposit Bond

Auto Dealer Bonds

An Auto Dealer Bond, also called a Motor Vehicle Dealer Bond or MVD Bond, is a type of License Surety Bond. This bond is required of a Motor Vehicle Dealer to obtain their license to buy and sell autos for profit. In some states, Auto Dealer Bonds are also required of businesses that deal in motor vehicle parts, distribution and title and registration work.

Sales Tax Bonds

A Sales Tax Bond is a form of Financial Guarantee Surety Bond. This means that the Surety would be guaranteeing the principal's sales tax payments to the government. This type of surety bond may be required of any business that collects state sales tax along with payment for sold goods.

Customs Bonds

A Customs Bond is required by the Department of Homeland Security. It is a guarantee to the government that the importer will faithfully abide by all laws and regulations governing the importation of merchandise into the United States.

Court Bonds

A Court Bond is a generic term for many types of surety bonds required by the Judicial system. Examples include:

• Appeal Bond
• Fiduciary Bond
• Executor Bond
• Administrator Bond
• Release of Lien Bond
• Replevin Bond
• Bankruptcy Receiver Bond

Fidelity Bonds

A Fidelity Bond is a form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. Typically, the fidelity policy insures a business for losses caused by the dishonest acts of the business's employees. There are many types of Fidelity Bonds available to different types of businesses.