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Surety Bond

A surety bond is a financial product that provides a guarantee to a third party that a business will fulfill its obligations. In the money services business, a surety bond is often required as a condition of obtaining a license to operate.

There are different types of surety bonds, but they all work in a similar way. The business seeking the bond (the principal) works with a surety company to obtain the bond. The surety company then issues a bond to the principal, which is typically valid for a specific period of time. If the principal fails to fulfill its obligations during this time, the bond provides protection to the third party (the obligee) by covering any losses or damages that may result.

Surety bonds are used to protect against a variety of risks, including financial losses, property damage, and contractual breaches. They are commonly required in industries such as construction, real estate, and money services, where there is a risk of financial loss or damage to property.

To get a surety bond, a business typically needs to work with a surety company or a broker. The business will need to provide information about its financials, operations, and any relevant licenses or permits. The surety company will then review this information and, if it determines that the business is a good risk, will issue the bond. The business will typically need to pay a premium for the bond, which is a percentage of the bond’s value. The premium is typically based on the risk involved and the creditworthiness of the business.

This page was last updated on January 6, 2023.