When signing a contract, carrying out an agreement or doing a project with an ally, it is important to have a surety company to obtain guarantees of compliance with the agreement. These companies are known to guarantee the client that if any contract is not fulfilled in its entirety, the affected party will be compensated.
However, bonding companies offer more than that, whether they are legal policies or performance bonds, among others, so we will explain what it is, how it works, the types of bonding companies that exist and much more.
What is a surety company?
Surety companies are known as Institutions capable of granting guarantees to their clients when creating an agreement or contract with other companies or with a natural person. These guarantees are known as bonds, which, in case of non-compliance, may apply fines and additional charges, such as Late Fees, to the opposing party.
Bonding companies act as a guarantee for a contract that includes an obligation. With a bond, the company assumes responsibility in the event that one of the parties fails to comply. Unlike an insurance contract, where companies protect themselves against future risks, sureties use them to ensure compliance with an obligation contractual.
How does a surety work?
A surety company is dedicated to issuing guarantees and bonds as a tool to support the fulfillment of the obligations of a third party contract. When requesting a guarantee or endorsement from the surety company, it will carry out an evaluation to determine the applicant’s ability to pay and solvency.
Likewise, when determining whether or not it is viable to issue the endorsement or guarantee, if viable, the surety company will issue it, thus turning it into a payment commitment in case the obligations are breached. In the event that one of the parties does not comply with its obligations, the beneficiary of the guarantee or endorsement can file a claim before the surety.
This is in charge of making investigations where it is determined if the claim is valid or not, if so, the surety company will assume the corresponding payment to the beneficiary. The issuance of a bond may have associated costs, either by issuance commission of the guarantee or a risk premium that must be paid during the term of the bond.
What is a surety for?
In general, a surety company is sought for support compliance with contracts or contractual obligations, such as construction projects, lease contracts, among others. However, a bonding company is also used to increase the level of trust and credibility of a contractor, generating better business opportunities.
On the other hand, by issuing a guarantee for a project, the financing conditions are improved because, having that guarantee, the risk of non-compliance is reduced. The characteristics that define a bond or what a surety company offers are used to protect the beneficiaries in the event that the debtor or contractor fails to comply with the provisions.
Understanding how a surety company works when the contract is breached is easy, since, basically, they take charge of the payment for breach of contract, taking actions on the part that did not comply with the same.
How many types of surety are there?
The type of surety It will depend on the country you are in., the specific law or regulation to which they are subject and what it is for or what type of bond you need it for. There are several types of sureties, choosing one will depend on the type of guarantee or contract you want to insure, among some types are the following:
The general bonding companies are those that issue endorsements and/or guarantees as support for the fulfillment of contractual obligations to third parties in various sectors.
On the other hand, companies that focus on issuing guarantees to support loans or financing to individuals, a property or companies are known as credit sureties.
While, a surety company that focuses on a single sector or specific area, be it construction, transportation, among others, are known as “Specialized sureties”. These offer personalized services adapted to the needs of the sector in which they operate, issuing guarantees and guarantees in their specific work areas.
Finally, there are also fidelity bonding companiesthese guarantee that employees comply with their labor obligations and responsibilities by issuing guarantees and guarantees on them.
What is being ‘Secured’ on a job application?
When making a job application, seeing the term “bonded” or the employee stating that they are bonded means that the candidate has a performance guarantee from work. This works as proof that a surety company supports the candidate’s contractual obligations as an employee.
In the cases of high-level positions, it is very common for the employer to request that the candidates present a bond of compliance with obligations. In this way, the surety company that issues this guarantee bears the costs of non-compliance by the candidate in case of being hired.
What is a letter or proof of guarantee in a job application?
A certificate or guarantee letter It is a document issued by a surety company that endorses or guarantees that the person making the job application will comply with their contractual obligations. Some companies or institutions request a guarantee letter when recruiting new employees to ensure that they will carry out their work.
The proofs of guarantee fulfill their work as a guarantee in the event that the candidate is selected and during his career he fails to comply with his contractual obligations. If this happens, the surety company would take care of the damages caused by the employee.
On the other hand, it is important to know that the issuance of a guarantee letter in some cases will depend on the previous solvency assessment. This will determine if the candidate has the credit capacity for the surety company to issue its certificate or guarantee letter.
It should be noted that Not all companies require proof of guaranteeTherefore, before applying, you must verify the requirements requested by the employer.