Types of Surety Bonds

There are many different types of surety bonds that are required by an obligee. Three parties involved with a surety bond include the obligee, the principal, and the surety company. The obligee is the party requiring the principal to be bonded, and the surety company is the party that insures the bond.

For most bonds, the obligee is the state, city, county, or federal government. The principal is legally bound to the surety bond, and if the principal acts against the bond, a claim can be taken against the bond which the surety company will pay out. Then , the principal is responsible for repaying the surety company for the paid claim.

License and Permit Surety Bonds

Government agencies require this bond type for businesses. A license and permit bond is a type of commercial bond that is required for businesses in certain industries.  These bonds need to be bought before the business can legally be licensed. Without a business license, it is not legal for a business to assist customers and to receive payment for that service.  License and permit bonds protect customers because the bond guarantees that the business will abide by laws and regulations enforced by local, state, and federal agencies. These bonds also ensure that the bills and fees will be paid on time, such as utility bills, taxes, employee wages, etc.  For this type of bond, the obligee is the government agency requiring the bond, the principal is the business that must be bonded, and the surety company is the party that insures the bond.

Auto Dealer Bond

Almost every state requires their own form of an auto dealer bond. This bond can be referred to as an automobile bond, a motor vehicle dealer bond, a DMV bond, or a used car dealer bond. The exact name of the bond depends on the state the business is located. The bond’s purpose is to protect customers from fraud or misconduct committed by the auto dealer.

Freight Broker Bond  

A surety bond in the amount of $75,000 is required by the FMCSA under 49 CFR Part 387.307 for all licensed brokers of property. A Form BMC-84 is used to make the filing with the FMCSA and remains in effect until cancelled by the bonding company.  The surety bond is used to ensure the financial responsibility of the broker by providing for payments to shippers or motor carriers if the broker fails to carry out its contracts, agreements, or arrangements for the supplying of transportation by authorized motor carriers.