How To Obtain A California Surety Bond

A surety bond in California is a legally binding three-party agreement. It guarantees that all contractual obligations will be met. If the bond owner fails to fulfill their responsibilities, the surety company compensates the loss and later recovers the compensation amount plus any administrative or legal expenses incurred by them from the bond owner.

The three parties in a surety agreement are-the Principal that is the person or party that is required to obtain a bond, the Obligee-the party requiring the bond (can be a project owner or court), and the Surety that is the surety company that issues the bond.

Obtaining a Surety Bond

Here are the steps to get a surety bond in California.

Determine the Type of Bond Needed

The first step to get a surety bond is to determine the specific type of surety bond required.

There are three types of surety bonds:

• contract bonds (for construction projects)
• commercial bonds (for businesses needing to comply with laws or regulations)
• court bonds (required by courts for various legal processes)

Choose a Surety Company or Bond Agency

Look for a reputable surety company or a bond agency that specializes in the type of bond you need. Make sure the provider is licensed in the state where the bond will be required.

Apply for a Surety Bond

After filling out the surety bond application form shared with you by the provider, send it back to them. Be prepared to provide financial information, as the provider’s team will want to check your credit score and analyze your finances to assess your creditworthiness.

Submit Financial Documents

The surety company will likely request financial documents to assess your creditworthiness and the risk they will be assuming if they decide to issue a bond.

Underwriting

Next, the surety will perform a credit check and examine the documents submitted by you to assess the risk involved.

Receive a Quote

If the surety company approves your application, they will offer you a bond at a specific premium rate. Surety bond premium is a percentage of the bond amount and varies based on the Principal’s creditworthiness and the type of bond.

Pay the Premium

Once you agree to the terms of the agreement and pay the premium, the surety company will issue the bond.

File the Bond

After receiving the bond, submit it to the appropriate entity that requires the bond (such as a government department, a court, or any other party).

Is Collateral Required to Obtain a Surety Bond?

Collateral is typically not required to obtain a surety bond in California, however, in cases where the applicant’s credit score is low, or the surety determines that they are assuming a high risk by issuing the bond, the surety company might require the applicant to pledge assets such as cash, letters of credit or real estate.

Different Types of Surety Bonds

Here are the main types of surety bonds.

Contract Bonds

Construction project owners often require contractors to obtain contract bonds before awarding them contracts. A contract bond guarantees that the contractor will keep their end of the bargain and fulfill their contractual obligations.  Some subtypes include:

• Bid bonds – A bid bond is used to ensure that the principal-in this case the contractor meets the contract terms at the agreed price.
• Performance bonds – A performance bond guarantees that work will be completed to the satisfaction of the project owner and according to the terms of the agreement.

Commercial Bonds

A business that wants the state in which it operates to recognize it as a legal entity may be required to obtain a commercial bond. A commercial bond guarantees that the bond holder will adhere to laws or regulations. Common types include:

• License and permit bonds – Municipalities and other public bodies require individuals and businesses to obtain license and permit bonds before granting them licenses or permits to engage in certain business activities.
• Utility bonds: If a business is expected to consume large amounts of electricity or water, their utility provider may require that they obtain a utility bond, which guarantees payment of utility bills

Court Bonds

These are used in court proceedings. A court bond guarantees that the bond owner will fulfill certain roles or make payments as instructed by the court. Some common types of court bonds include:

• Fiduciary / probate bonds: A court may instruct a person appointed to manage the affairs or assets of a minor or physically or mentally incapacitated person to obtain a probate bond. A probate bond guarantees that the bond owner will act according to the estate terms and will carry out their duties and responsibilities diligently.
• Appeal bonds: If a person involved in a civil lawsuit wants to appeal to a higher court, they may be required to obtain an appeal bond to stay the payment of the judgment. It guarantees the payment of the original judgment as well as court costs if the appeal is unsuccessful.
• Injunction bonds: A plaintiff seeking a preliminary injunction may be required to obtain an injunction bond. If it is later determined that the injunction was wrongful, the defendant can file a claim against the bond.
• Replevin bonds: If you claim that the property held by the opposing party actually belongs to you, the court may require that you obtain a replevin bond. The bond guarantees that you will return the property in good condition to the defendant if the court rules in their favor.
• Cost bonds: A cost bond guarantees that the plaintiff will pay all the court expenses. It is usually required if the defendant does not reside in the jurisdiction in which the case is being heard.

H.M. Vreeland is a trusted surety bond company in California. Our unparalleled expertise enables us to create tailored bonding solutions. To consult one of our experts, call 415-566-3401.