Differences between Contract Bonds and Commercial Bonds

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Contract and Commercial Bonds are the two main categories of surety bonds. Although both bond types are issued by a surety company, they are distinct in their usage and application.

  • Contract Surety Bonds
    Contract bonds are exclusively secured by firms guaranteeing a contract. It is a contractual agreement between three parties: project owner, contractor, and a surety. The surety company guarantees the contractor will complete the project as per the specifications of the contract. There are several types of contract bonds including Bid Bond, Performance Bond, Payment Bond, Maintenance Bond, Warranty Bond, and Advance Payment Bond.
  • Commercial Surety Bonds
    Commercial bonds are required on the basis of a legal statute. A commercial bond is a guarantee of financial performance. These bonds are required by municipalities or public authorities to protect the general public against loss in the event of violation of regulations. Commercial bonds are comprised of several types of bonds including a license and permit bond, court/judicial bond, tax preparer bond, notary bond, process server bond, and other miscellaneous types of bonds.

Both contract and commercial surety bonds are underwritten by a surety company. It is important for you to work closely with a surety bonding company to make sure you receive the right surety bond at the best terms.