---
title: "What Are Surety Bonds?"
description: "A surety bond guarantees an obligation your business owes to a customer or other party if your business defaults."
canonical: "https://spot.insure/coverage/surety-bonds"
page-type: "coverage-article"
updated-at: "2026-09-16"
verified-at: "2026-09-16"
---

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[Human-readable page](https://spot.insure/coverage/surety-bonds)

# What Are Surety Bonds?

A surety bond guarantees an obligation your business owes to a customer or other party if your business defaults.

## Summary

A surety bond is a three-party agreement in which a surety guarantees an obligation the principal owes to an obligee if the principal defaults. [1](https://content.naic.org/glossary-insurance-terms) [2](https://www.sba.gov/funding-programs/surety-bonds)

## What Do Surety Bonds Cover?

A surety bond involves three parties. For a city construction job, the contractor is the principal, the city is the obligee and the surety guarantees the specified obligation if the contractor defaults. The guarantee benefits the city; it isn't insurance for the contractor's own losses. [1](https://content.naic.org/glossary-insurance-terms) [2](https://www.sba.gov/funding-programs/surety-bonds) [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [1](https://content.naic.org/glossary-insurance-terms)

### Not a Substitute for Your Own Insurance

A surety bond protects the customer or other obligee if the business does not meet the bonded obligation; it is not a substitute for the business’s own liability or property insurance. [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [1](https://content.naic.org/glossary-insurance-terms)

### Dishonest Acts Versus a Guaranteed Obligation

A fidelity discussion concerns loss from dishonest acts; a surety bond concerns a guarantee of an obligation to another party. [1](https://content.naic.org/glossary-insurance-terms)

## Who Needs Surety Bonds?

You may need a surety bond when a customer, contract, license or permit requires one. Obtain the required bond form and amount first. [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [5](https://www.chubb.com/us-en/surety.html)

## Coverage Examples

These are examples, not coverage guarantees. Your policy terms and the facts of the claim determine what is covered.

### A Project Owner Requires a Bond

A customer asks for a bond before your construction project can begin.

A performance bond guarantees the completion obligation; a payment bond concerns suppliers and subcontractors. The required contract and bond form establish which guarantee the customer needs. [1](https://content.naic.org/glossary-insurance-terms) [2](https://www.sba.gov/funding-programs/surety-bonds) [2](https://www.sba.gov/funding-programs/surety-bonds) [3](https://www.law.cornell.edu/uscode/text/40/3131) [5](https://www.chubb.com/us-en/surety.html) [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [5](https://www.chubb.com/us-en/surety.html)

### A License Application Calls for a Bond

Your business license application requires a surety bond.

A commercial surety bond can guarantee the specified legal or regulatory obligation. It protects the obligee and doesn't replace your own liability insurance. [1](https://content.naic.org/glossary-insurance-terms) [2](https://www.sba.gov/funding-programs/surety-bonds) [2](https://www.sba.gov/funding-programs/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [6](https://www.travelers.com/surety-bond) [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [1](https://content.naic.org/glossary-insurance-terms)

## How Do You Compare Coverage and Costs?

### Contract Bonds and Commercial Bonds

Contract bonds guarantee that the terms of a specific contract will be fulfilled; commercial bonds address legal or regulatory obligations such as licenses, and they are a different product discussion. [2](https://www.sba.gov/funding-programs/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [6](https://www.travelers.com/surety-bond)

### Bid, Performance and Payment

Bid, performance and payment bonds serve different contract needs: the bid, completing the work, and paying suppliers and subcontractors. [2](https://www.sba.gov/funding-programs/surety-bonds) [3](https://www.law.cornell.edu/uscode/text/40/3131) [5](https://www.chubb.com/us-en/surety.html)

Identify who requires the bond, the exact obligation, and whether the need is a license or permit, a bid, performance of a job, payment of subcontractors, or another commercial bond form. [2](https://www.sba.gov/funding-programs/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [7](https://www.harperinsure.com/coverages/surety-bonds)

| Hypothetical need | What to identify |
| --- | --- |
| Auto-dealer license | The regulator and the license or permit bond form |
| School-renovation bid | The owner and the bid-bond requirement |
| Awarded job, subcontractors to be paid | The payment-bond requirement |
| Completing the awarded work | The performance-bond requirement |

## What Are the Bond Requirements for Federal Construction?

For a federal construction project, check the solicitation and applicable bonding requirements with the contracting officer before arranging performance or payment bonds. [4](https://www.acquisition.gov/far/28.102-1)

## How Does It Compare With Related Coverage?

### Letters of Credit and Other Security

If a contract permits a letter of credit or a surety bond, compare those options with the obligee’s stated requirements rather than assuming they are interchangeable. [5](https://www.chubb.com/us-en/surety.html)

## What Do You Need for a Quote?

Sureties evaluate the business’s credit, capacity and character; prepare financial information and a description of the work or license to be bonded. [2](https://www.sba.gov/funding-programs/surety-bonds)

Prepare the obligee’s required bond form and amount, the contract or license documents, and financial information for the surety’s evaluation. [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [5](https://www.chubb.com/us-en/surety.html)

### Obligee Forms, Job Details and Financials

| Prepare | How to use it |
| --- | --- |
| Who requires the bond and the exact obligation | Match license, bid, performance, payment or another commercial form |
| The obligee’s required bond form and amount | Compare what is requested with what is being arranged |
| Contract or license documents | Give the job or license context for the evaluation |
| Financial information | Support the surety’s credit, capacity and character review |

[2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [2](https://www.sba.gov/funding-programs/surety-bonds) [2](https://www.sba.gov/funding-programs/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [7](https://www.harperinsure.com/coverages/surety-bonds)

## Key Terms in Plain English

### Principal and Obligee

The principal owes the obligation; the obligee is the party to whom it is owed. The surety guarantees that obligation if the principal defaults. [1](https://content.naic.org/glossary-insurance-terms) [2](https://www.sba.gov/funding-programs/surety-bonds)

### Performance and Payment Bonds

Different guarantees for completing work and paying suppliers or subcontractors. [2](https://www.sba.gov/funding-programs/surety-bonds) [3](https://www.law.cornell.edu/uscode/text/40/3131) [5](https://www.chubb.com/us-en/surety.html)

## Frequently Asked Questions

### Who Does a Surety Bond Protect?

The customer or other obligee to whom the obligation is owed. It doesn't replace the business's own liability or property insurance. [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [1](https://content.naic.org/glossary-insurance-terms)

### Are Performance and Payment Bonds the Same?

No. A performance bond concerns completing the work; a payment bond concerns paying suppliers and subcontractors. [2](https://www.sba.gov/funding-programs/surety-bonds) [3](https://www.law.cornell.edu/uscode/text/40/3131) [5](https://www.chubb.com/us-en/surety.html)

### How Is a Commercial Surety Bond Different From a Contract Bond?

A contract bond guarantees obligations under a particular contract. A commercial bond concerns a legal or regulatory obligation, such as a licensing requirement. Match the bond to the obligation the customer or regulator requires. [2](https://www.sba.gov/funding-programs/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [6](https://www.travelers.com/surety-bond) [2](https://www.sba.gov/funding-programs/surety-bonds) [5](https://www.chubb.com/us-en/surety.html) [7](https://www.harperinsure.com/coverages/surety-bonds)

### What Does a Surety Review Before Issuing a Bond?

Sureties evaluate credit, capacity and character. Prepare financial information and a description of the work or license, along with the required bond form, amount and related documents. [2](https://www.sba.gov/funding-programs/surety-bonds) [2](https://www.sba.gov/funding-programs/surety-bonds) [7](https://www.harperinsure.com/coverages/surety-bonds) [5](https://www.chubb.com/us-en/surety.html)

## Related Coverage

- [What Are Fidelity Bonds?](https://spot.insure/coverage/fidelity-bonds) — Fidelity bonds and employee-dishonesty policies address losses caused by dishonest employees, within the limits and terms purchased.
- [What Is General Liability Insurance?](https://spot.insure/coverage/general-liability) — General liability covers claims that your business injured someone, damaged their property or committed a specified personal or advertising offense. It does not insure your own building or equipment.
- [What Is Builders Risk Insurance?](https://spot.insure/coverage/builders-risk) — Builders risk insurance addresses physical property losses during building construction.

## Documented Providers

### [Chubb](https://spot.insure/insurance-providers/chubb)

Chubb offers surety bonds. [8](https://www.chubb.com/us-en/surety.html)

### [Coverdash](https://spot.insure/insurance-providers/coverdash)

Coverdash lists surety bonds in its Excess & Specialty catalog with a quote route. [9](https://www.coverdash.com/coverage)

### [Embroker](https://spot.insure/insurance-providers/embroker)

Embroker arranges construction-contract and license or permit surety bonds. [10](https://www.embroker.com/coverage/surety-bonds/)

### [Gallagher](https://spot.insure/insurance-providers/gallagher)

Gallagher arranges surety bonds. [11](https://www.gallaghersmallbusiness.com/technology-services/)

### [Harper](https://spot.insure/insurance-providers/harper)

Harper arranges license, permit and contract surety bonds. [12](https://www.harperinsure.com/coverages/surety-bonds)

### [Heffernan Insurance Brokers](https://spot.insure/insurance-providers/heffernan)

Heffernan arranges surety bonds, including through a linked online bond portal. [13](https://www.heffins.com/business-insurance/marine-cargo/) [14](https://www.heffins.com/quick-insure/)

### [HUB International](https://spot.insure/insurance-providers/hub-international)

HUB International arranges surety bonds. [15](https://www.hubinternational.com/products/business-insurance/surety-bonds/)

### [Lockton](https://spot.insure/insurance-providers/lockton)

Lockton arranges surety bonds. [16](https://global.lockton.com/us/en/products-services/solutions-for-private-equity-firms)

### [Marsh](https://spot.insure/insurance-providers/marsh)

Marsh McLennan Agency (MMA), a Marsh business, arranges contract and commercial surety bonds. [17](https://www.marsh.com/en/industries/technology/expertise/data-center-insurance-and-risk-management-services.html) [18](https://www.marshmma.com/us/solutions/surety.html)

### [Mylo](https://spot.insure/insurance-providers/mylo)

Mylo compares commercial surety-bond quotes for license or permit obligations. [19](https://choosemylo.com/business/product-surety-bonds)

### [Newfront](https://spot.insure/insurance-providers/newfront)

Newfront arranges contract and commercial surety bonds. [20](https://www.newfront.com/surety)

### [Relm Insurance](https://spot.insure/insurance-providers/relm)

Relm lists contract surety for placement through brokers. [21](https://relminsurance.com/lines-of-business/)

### [StartupInsurance.ai](https://spot.insure/insurance-providers/startupinsurance)

StartupInsurance.ai arranges surety bonds for startups. [22](https://www.startupinsurance.ai/)

### [TechInsurance](https://spot.insure/insurance-providers/techinsurance)

TechInsurance arranges surety bonds for small businesses. [23](https://www.techinsurance.com/contact-us)

### [Travelers](https://spot.insure/insurance-providers/travelers)

Travelers offers surety bonds. [24](https://www.travelers.com/surety-bond)

### [USI Insurance Services](https://spot.insure/insurance-providers/usi)

USI arranges contract, commercial and international surety bonds. [25](https://www.usi.com/property-casualty/surety-bond/)

## Sources

1. [Glossary of Insurance Terms](https://content.naic.org/glossary-insurance-terms). National Association of Insurance Commissioners; Surety Bond; Fidelity. Accessed 2026-09-16.
2. [Surety bonds](https://www.sba.gov/funding-programs/surety-bonds). U.S. Small Business Administration; Opening guarantee of work completion; Contract or commercial bonds; Bid, Payment, Performance, Ancillary; Eligibility > credit, capacity, and character. Accessed 2026-09-16.
3. [40 U.S. Code § 3131 — Bonds of contractors of public buildings or works](https://www.law.cornell.edu/uscode/text/40/3131). Legal Information Institute, Cornell Law School, reproducing 40 U.S.C. § 3131; §3131(b) Type of Bonds Required — performance bond and payment bond. Accessed 2026-09-16.
4. [28.102-1 General](https://www.acquisition.gov/far/28.102-1). Federal Acquisition Regulation / Acquisition.gov; 28.102-1(a)–(c). Accessed 2026-09-16.
5. [Surety Bonds](https://www.chubb.com/us-en/surety.html). Chubb; Construction Surety Bonds (performance, payment, maintenance); Commercial Surety Bonds (license and permit, court, commercial contract). Accessed 2026-09-16.
6. [Surety Bond](https://www.travelers.com/surety-bond). Travelers; Surety bonds provided by Travelers: Bid, Performance and Payment; Commercial surety; Contract surety. Accessed 2026-09-16.
7. [Surety Bonds Insurance](https://www.harperinsure.com/coverages/surety-bonds). Harper; What is Surety Bonds insurance?; A bond is not insurance; License & permit bonds; Contract bonds — bid, performance, and payment; Is a bond the same as insurance? Accessed 2026-09-16.
8. [Surety Bonds](https://www.chubb.com/us-en/surety.html). Chubb; Construction, commercial, transactional and international surety; footer identifying Chubb as marketing name and ACE American as an issuing company; products may not be available in all states. Accessed 2026-09-16.
9. [Coverage Hub](https://www.coverdash.com/coverage). Coverdash; Core Business: General Liability, Business Owner’s Policy, Commercial Property, Workers’ Comp; Professional & Management: Professional Liability, Tech E&O, Lawyers Professional Liability, Directors & Officers, Employment Practices, Fiduciary, Management Liability, Media Liability; Cyber & Crime: Cyber Insurance, Crime Coverage, Kidnap & Ransom; Property & Catastrophe: Builder’s Risk, Equipment Breakdown, Inland Marine; Auto & Transport: Commercial Auto, Motor Truck Cargo, Non-Trucking Liability, Ocean Marine; Excess & Specialty: Umbrella, Excess Liability, Product Liability, Product Recall, Liquor Liability, Surety Bond; Get a quote links. Accessed 2026-09-16.
10. [Surety Bonds](https://www.embroker.com/coverage/surety-bonds/). Embroker; Surety Bonds: opening statement that Embroker helps obtain surety bonds; What are they? (obligee, principal and surety; government agency; license or permit); What Is a Construction Bond?; Get a Quote. Accessed 2026-09-16.
11. [Insurance for Technology & IT Businesses](https://www.gallaghersmallbusiness.com/technology-services/). Gallagher Small Business; Protection for IT Professionals & Their Technology-Based Businesses; recommended coverage menu, including Surety Bond Programs; Connect With An Advisor. Accessed 2026-09-16.
12. [Surety Bonds](https://www.harperinsure.com/coverages/surety-bonds). Harper; Surety Bonds: license and permit bonds; contract bid, performance and payment bonds; repayment obligations and timing FAQ. Accessed 2026-09-16.
13. [Marine Cargo](https://www.heffins.com/business-insurance/marine-cargo/). Heffernan Insurance Brokers; Transportation Insurance Programs for Freight Forwarders and Logistics Companies; Coverage Options: Marine Cargo, E&O and Surety Bonds; Specialty Programs; in-house underwriting authority; exclusive access to major insurance carriers; dedicated claims division with settlement authority. Accessed 2026-09-16.
14. [Quick Insure](https://www.heffins.com/quick-insure/). Heffernan Insurance Brokers; Fast quotes for personal and business insurance; Business Insurance tiles including Short Term General Liability, Surety, Special Event Insurance, Peer-to-Peer Car Rental; linked Propeller bond portal and third-party bond-provider notice; Trusted Providers copy. Accessed 2026-09-16.
15. [Surety Bonds and Surety Bond Insurance for Businesses](https://www.hubinternational.com/products/business-insurance/surety-bonds/). HUB International; Contract surety types including bid, performance and payment bonds. Accessed 2026-09-16.
16. [Risk & People Solutions for Private Equity Firms](https://global.lockton.com/us/en/products-services/solutions-for-private-equity-firms). Lockton; Lockton capabilities across the investment life cycle: D&O/GPL, transaction insurance (reps, tax, litigation), E&O, crime and FI bonds, cyber, EPL, surety, portfolio company programs, key person insurance and benefits design. Accessed 2026-09-16.
17. [Data center insurance and risk management](https://www.marsh.com/en/industries/technology/expertise/data-center-insurance-and-risk-management-services.html). Marsh; Managing data center risk; Closing the gaps in conventional coverage (property, casualty, technology E&O); Derisking power purchase agreement and interconnection obligations; FAQs: What does data center insurance typically cover? (property damage, equipment breakdown, business interruption, cyber, general liability). Accessed 2026-09-16.
18. [Surety Bonds to Mitigate Company Risk | MMA](https://www.marshmma.com/us/solutions/surety.html). Marsh McLennan Agency; Opening: we provide surety bonds; national market representation. Accessed 2026-09-16.
19. [Surety Bonds](https://choosemylo.com/business/product-surety-bonds). Mylo; Surety Bonds Show You Mean Business (license and permit obligations; Mylo compares quotes from top surety bond providers); How Does A Surety Bond Work (three-way agreement); quote calls to action; FAQs. Accessed 2026-09-16.
20. [Surety](https://www.newfront.com/surety). Newfront; Safeguarding Your Success; Contract Bonds; Commercial Bonds; Key Bond Types for Your Business: Contract Surety, Commercial Surety, Subdivision/Developer Bonds; Industry-Leading Technology. Accessed 2026-09-16.
21. [Lines of Business](https://relminsurance.com/lines-of-business/). Relm Insurance; Financial Lines through Specialty Lines; individual offering lists. Accessed 2026-09-16.
22. [Startup Insurance | Coverage that clears the review](https://www.startupinsurance.ai/). StartupInsurance.ai; Hero; Coverage: What we place and The startup program; AI coverage that names AI; Physical risk, because AI outgrew software; The paperwork runs itself; carrier panel; Straight talk; footer agency and issuer disclosure. Accessed 2026-09-16.
23. [Contact Us](https://www.techinsurance.com/contact-us). TechInsurance; FAQs: How does TechInsurance work? (agent assistance obtaining surety bonds); agent or broker role; application; finding quotes; updating address; certificates. Accessed 2026-09-16.
24. [Surety Bonds](https://www.travelers.com/surety-bond). Travelers; Listed bond types including bid/performance/payment, license and permit, and ERISA fidelity. Accessed 2026-09-16.
25. [Surety Bonds: Contract, Commercial and International](https://www.usi.com/property-casualty/surety-bond/). USI Insurance Services; Specializing in Surety Bond Solutions; contract, commercial and international surety services; construction and surety products; contact route. Accessed 2026-09-16.

Updated 2026-09-16. Factually reviewed 2026-09-16. Spot, a product of Tools for Enlightenment, publishes this research and works in the commercial insurance market. [Editorial policy](https://spot.insure/editorial-policy). To suggest a correction, [contact Spot](https://spot.insure/contact) with the page URL and supporting source.

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