Frequently Asked Questions
Surety bonds, explained.
Answers to the questions we hear most often. If you don’t see what you’re looking for, give us a call.
THE BASICS
Understanding surety bonds
A surety bond is a three-party agreement between the principal (the party performing the obligation), the obligee (the party requiring the bond, often a project owner or government agency), and the surety (the company guaranteeing the obligation).
If the principal fails to meet its obligations, the surety steps in to make the obligee whole. The principal is then obligated to reimburse the surety.
Insurance protects the policyholder against losses. A surety bond protects a third party — the obligee — against the principal’s failure to perform.
If a claim is paid by the surety, the principal is contractually required to reimburse the surety in full. This is a fundamental difference from insurance.
The bond premium is generally a small percentage of the bond amount — typically 1% to 3% for contract bonds on qualified contractors. Commercial bond premiums vary by bond type and applicant credit.
Call us for a specific quote based on your bond amount and qualifications.
CONTRACT BONDS
Construction & contract bonds
A bid bond guarantees that the contractor will sign the contract and provide the required performance and payment bonds if awarded the project.
A performance bond guarantees that the contractor will complete the work in accordance with the contract terms. If the contractor defaults, the surety either completes the project or otherwise remedies the default.
The Miller Act is a federal law requiring contractors on federal construction projects exceeding $100,000 to provide performance and payment bonds. Most states have “Little Miller Acts” that impose similar requirements on state and local public works projects.
Surety underwriting typically reviews the “three C’s”: Capacity (the contractor’s ability to perform the work), Capital (the contractor’s financial strength), and Character (the contractor’s reputation and track record).
For larger bonds, sureties generally request CPA-prepared financial statements, work-in-progress schedules, and bank references. Smaller bonds may qualify based on a credit-only review.
COMMERCIAL BONDS
License, permit & court bonds
License and permit bonds guarantee that a licensed business will comply with the laws and regulations governing its industry. If the business violates those laws and causes harm to a member of the public, the bond provides a means of financial recovery.
Most routine commercial bonds — notary, license and permit, basic court bonds — can be issued the same business day. More complex or higher-value bonds may require additional underwriting time.
WORKING WITH SHOREWEST
About our process
Most routine bonds are issued the same business day. Shorewest holds in-house underwriting authority, which means many contract bond decisions can be made within hours rather than days.
Yes. While we’re headquartered in Wisconsin, we write surety bonds for clients across all 50 states.
Often, yes. Our relationships with 15+ A-rated surety companies and our in-house underwriting authority give us flexibility to place accounts that another agency may not be able to write. Call us to discuss your situation.
