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What Is a Surety Bond?

A surety bond is a three-party instrument between a surety, the contractor and the project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed. Below are the four types of contract bonds that may be covered by an SBA guarantee:

• 1. Bid - Bond which guarantees that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds.

• 2. Payment - Bond which guarantees payment from the contractor of money to persons who furnish labor, materials equipment and/or supplies for use in the performance of the contract.

• 3. Performance - Bond which guarantees that the contractor will perform the contract in accordance with its terms.

• 4. Ancillary - Bonds which are incidental and essential to the performance of the contract.