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What Is a Surety Bond?

A surety bond is a three-party agreement involving:

The Principal

Your business—the party required to obtain the bond.

The Obligee

The party requiring the bond—such as a project owner, government agency, licensing authority, or other organization.

The Surety

The insurance/surety company that guarantees the principal's obligations under the bond, subject to the bond's terms.  The important distinction is that a surety bond is not the same thing as traditional insurance.

With many insurance policies, the insurer assumes covered risk on behalf of the insured.  With a surety bond, the surety guarantees the principal's performance or obligation to the obligee. If the principal defaults and the surety pays a covered claim, the principal may remain responsible for reimbursing the surety according to the bond and indemnity agreement.

In simple terms:

A surety bond gives the obligee a financial guarantee that your business will meet a specified obligation.

The exact obligations depend on the wording of the bond.

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Why Do Businesses Need Surety Bonds?

Many public and private contracts require contractors to obtain surety bonds before they can begin or even bid on certain projects.

A bond requirement can give the project owner additional assurance that:

• The contractor will perform the contract
• Subcontractors and suppliers will be paid as required
• The contractor will comply with specified obligations
• The contractor will satisfy certain licensing or regulatory requirements

The SBA explains that many public and private contracts require surety bonds and identifies bid, performance, payment, and ancillary bonds among the major contract-bond categories.

For a contractor, bonding can also open the door to projects that might otherwise be unavailable.

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Types of Surety Bonds

Sams One Stop can help businesses explore a variety of surety bond options, subject to carrier availability and underwriting.

Bid Bonds

A bid bond may be required when a contractor submits a bid for a construction or other contract.  It provides assurance to the project owner that the contractor will honor the bid and, if selected and required by the contract, proceed with the required performance and payment bonding.

Bid bonds may be required for:

• Public construction projects
• Government contracts
• Commercial construction
• Certain private projects

If you're preparing a bid and the solicitation requires a bid bond, don't wait until the submission deadline.

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Performance Bonds

A performance bond provides a guarantee related to the contractor's performance of the contract, subject to the bond's terms.  If a contractor fails to fulfill its contractual obligations, the surety may have obligations under the bond.  Performance bonds are particularly common in:

• Construction
• Public works
• Government contracting
• Commercial projects

Texas Department of Insurance describes performance bonds as bonds that can protect a project owner if a contractor doesn't complete the work required by the contract.

Need a performance bond?

Send us the contract or bonding requirements so we can determine what information is needed to begin the process.

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Payment Bonds

A payment bond provides protection related to payment obligations to qualifying subcontractors, laborers, and suppliers, subject to the bond's terms.  Payment bonds are particularly important on construction projects because a project owner or general contractor may want assurance that those working on the project will be paid.  The SBA identifies payment bonds as a major category of contract surety bond and explains that they can ensure payment to suppliers and subcontractors.

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Maintenance & Ancillary Bonds

Some contracts require bonds covering obligations beyond basic performance or payment.  These can include certain:

• Maintenance bonds
• Warranty-related obligations
• Supply obligations
• Completion obligations
• Other ancillary requirements

The exact bond depends on the contract.

If your contract specifies a particular bond form or requirement, send us the requirement rather than guessing which bond you need.

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License & Permit Bonds

Not every surety bond is related to construction contracts.  Government agencies, municipalities, licensing authorities and other organizations may require businesses to obtain license and permit bonds.  Examples can include requirements associated with:

• Contractors
• Auto dealers
• Service providers
• Certain regulated businesses
• Permits
• Licenses
• Municipal requirements

Texas Department of Insurance lists license and permit bonds among the common types of bonds available in Texas.

Need a license or permit bond?

Tell us what agency or organization is requiring the bond and the exact bond amount.

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Contractor Bonds in San Antonio

If you're a contractor in San Antonio, bonding can be an important part of growing your business.  You may need a bond when:

• Submitting a bid
• Winning a public project
• Working as a subcontractor
• Working for a general contractor
• Performing municipal work
• Performing commercial construction
• Pursuing larger contracts
• Meeting a client's contractual requirements

Your bonding needs can change as your business grows.  A contractor bidding on a $100,000 project may have very different bonding needs from a contractor pursuing multi-million-dollar public projects.

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Surety Bonds for Government Contractors

Government Contracting & Bonding Go Hand in Hand

This is one area where Sams One Stop has an opportunity to differentiate itself.  Your website already provides government-contracting consulting services, including certifications, contract readiness, proposal writing and proposal responses. Many government contractors encounter bonding requirements during the bidding process.

You may need:

Bid Bond → Performance Bond → Payment Bond

And the requirements can vary depending on:

• Contracting agency
• Contract type
• Contract value
• Project
• Solicitation
• Federal/state/local requirements
• Prime vs. subcontractor status

Before submitting your proposal:

Read the solicitation's bonding and insurance requirements carefully.

If you're unsure what is required, send us the relevant contract or solicitation language.

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SBA Surety Bond Guarantee Program

Having Trouble Qualifying for a Traditional Surety Bond?

The U.S. Small Business Administration (SBA) operates a Surety Bond Guarantee Program designed to help eligible small businesses obtain certain contract surety bonds.  The program can help qualifying small businesses that may have difficulty obtaining bonding through the standard market.

The SBA currently guarantees qualifying bid, performance, payment, and certain ancillary contract bonds issued through participating sureties.

According to the SBA, eligible businesses can qualify for guarantees on contracts up to specified limits, including up to $9 million for non-federal contracts and $14 million for certain federal contracts, subject to program requirements.

SBA eligibility isn't automatic.

The business and contract must meet applicable program requirements, and the surety still evaluates factors such as:

• Credit
• Character
• Capacity
• Financial condition
• Experience
• Contract requirements

The SBA describes these as important considerations in evaluating eligibility.

Ask Us About SBA-Backed Bonding Options

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What Does a Surety Company Look At?

Obtaining a bond isn't simply a matter of paying a premium.  Surety companies may evaluate your business much like a lender evaluates a borrower. Depending on the bond and underwriting program, the surety may consider:

Financial Strength

The surety may review your company's financial statements and overall financial position.

Experience

What projects has your company successfully completed?

Capacity

Does your company have the personnel, equipment, management and resources necessary to perform the contract?

Credit

Personal and business credit information may be considered.

Character

The surety may evaluate the company's ownership and management.

Current Work

The amount and type of work already underway can affect your ability to take on additional projects.

Contract Terms

The surety needs to understand what you're agreeing to do.

Bonding History

Existing bonding relationships and prior bond performance can be relevant.

The SBA specifically identifies credit, capacity and character among its surety eligibility considerations.

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Contract Bonds vs. Commercial Bonds

This distinction is important.

Contract Surety Bonds

Contract bonds generally relate to a specific contract.

Examples include:

• Bid bonds
• Performance bonds
• Payment bonds
• Maintenance/ancillary bonds

The SBA distinguishes contract bonds from commercial bonds and notes that its Surety Bond Guarantee Program guarantees certain contract bonds but not commercial bonds.

Commercial Surety Bonds

Commercial bonds generally relate to an obligation imposed by law, regulation, ordinance, or another requirement rather than performance of a particular construction contract.

Examples can include certain:

• License bonds
• Permit bonds
• Regulatory bonds
• Other statutory or commercial obligations

Texas Department of Insurance identifies both contract surety and license/permit bonds among the bond resources available in Texas.

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What Happens If a Contractor Defaults?

The exact process depends on the bond and circumstances.  Generally, the obligee must follow the bond's requirements when presenting a claim.  If the surety determines that a covered default exists, the surety's obligations may include options specified by the bond, such as:

• Arranging completion
• Paying the obligee up to the bond's limit
• Requiring another contractor to complete the work
• Taking other action permitted by the bond

The exact rights and obligations are determined by the bond language and applicable law.

A bond does not guarantee that every project dispute will be paid automatically.

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Common Bonding Mistakes

Waiting Until the Bid Deadline

A bond can require underwriting and documentation.

Applying for the Wrong Bond

Bid, performance, payment, license and permit bonds serve different purposes.

Focusing Only on Price

The cheapest bond isn't useful if it doesn't satisfy the contract.

Not Reading the Contract

Your bonding requirement may be buried in the solicitation or contract.

Underestimating Financial Requirements

Larger bonds can require substantial financial documentation.

Assuming SBA Guarantee Means Automatic Approval

The SBA program can help eligible small businesses obtain qualifying bonds, but it does not eliminate the surety's underwriting process.

Waiting Until After Winning the Contract

Your bonding capacity can be an important consideration before you submit the bid.

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Establish Your Bonding Capacity Before You Bid

If you're a growing contractor, don't think about bonding only when a bid is due.  Instead, consider establishing a bonding program.  A bonding program can help you understand:

• How much you may be able to bond
• Which types of contracts may fit your capacity
• What financial information you'll need
• What the surety expects from your company
• How to prepare for larger projects

Your goal should be:

Know your bonding capacity before you find the project.

That way, when an opportunity appears, you can determine whether the project fits your business.

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Surety Bonds for New Contractors

New to Contracting?

You don't necessarily have to wait years before exploring bonding.  New contractors may face more underwriting challenges, but there may be options depending on:

• Owner experience
• Financial resources
• Contract size
• Type of work
• Credit
• Business plan
• Management experience
• Working capital
• Available documentation

If you're a new contractor, we can help you understand what information a surety may need.

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Our Surety Bond Process

Step 1 — Tell Us What You Need

Send us the solicitation, contract, bond requirement or information from the obligee.

Step 2 — Determine the Bond Type

We'll identify whether you're looking for a:

Bid Bond - Performance Bond - Payment Bond - Maintenance/Ancillary Bond

License Bond -Permit Bond -Other Commercial Bond

Step 3 — Gather Your Information

We'll tell you what documents the surety may need.

Step 4 — Submit for Underwriting

The application is submitted to an appropriate surety program, subject to eligibility.

Step 5 — Review the Bond Terms

Before the bond is issued, make sure the bond amount, obligee, principal, project and other information are correct.

Step 6 — Issue the Bond

Once approved and all requirements are satisfied, the bond can be issued according to the applicable process.

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Need a Surety Bond?

Whether you're bidding on a construction project, pursuing a government contract, expanding your contracting business, or simply need a license or permit bond, start the bonding process before the deadline.

Send us your contract or bond requirement and we'll help you understand what information is needed to explore available options.

Sams One Stop / Sams Insurance Group

4063 East Houston St.
San Antonio, TX 78220

Phone: (210) 788-1034
Email: aaron@samsonestop.com

Serving qualifying businesses in San Antonio and throughout Texas, subject to surety availability, eligibility and underwriting.