Business
Surety Bonds: How They Work and What to Check
Published September 24, 2026 · Last updated October 1, 2026
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The short answer
A surety bond is a promise, backed by a bond company, that you'll follow the rules or finish the job. A state, city, or client asks for it to protect themselves, not you.
If someone files a valid claim, the bond company pays them. Then you pay the bond company back. That's the big difference from insurance.
Thimble is a participating provider that offers surety bondsSponsored online.
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What is a surety bond?
Three sides sign a bond:
- You (the principal), the business making the promise
- The bond company (the surety), which backs your promise
- The state, city, or client (the obligee), who asked for the bond and is protected by it
Insurance protects you. A bond protects the people you work for.
Which bond do you need?
- License bond. Your state or city requires it before it gives you a license. Contractors, auto dealers, freight brokers, and collection agencies see these most.
- Permit bond. For work in a public street or right of way, like cutting into a sidewalk to run a line.
- Bid bond. Shows you'll honor your bid if you win the job. Common on public work.
- Performance bond. Promises you'll finish the job the way the contract says.
- Payment bond. Promises your workers and suppliers get paid.
- Fidelity bond. Covers theft by your own employees. This one is closer to insurance.
Ask whoever is requiring it for the exact bond name and bond amount. Those two things set the price.
How much does a surety bond cost?
You don't pay the full bond amount. You pay a percentage of it, called the premium, usually for a one- or two-year term. The stronger your credit and your record, the smaller the percentage.
For example, a $10,000 license bond costs a small fraction of $10,000 each term. A $500,000 performance bond costs much more, and the bond company looks much harder at your business first.
Not a quote or an offer. The bond company sets your rate after it reviews your credit and your business.
What moves the number
- Bond amount.
- Your personal credit. This is the biggest factor on small bonds.
- Years in business and your work record.
- Kind of bond. Contract bonds on big jobs get a much closer look than a small license bond.
- Your financial statements, on larger contract bonds.
Help for small contractors: the SBA bond program
If you're a small contractor having trouble getting bonded, the U.S. Small Business Administration can help. SBA guarantees bid, performance, payment, and some other bonds for contracts up to $9 million on non-federal work and $14 million on federal work. That makes bond companies more willing to bond you.
SBA charges its own fee of 0.6% of the contract price for performance and payment bond guarantees. That's on top of what the bond company charges. There's no SBA fee for bid bond guarantees.
What to ask before you choose
- "What's the exact bond form my state or city accepts?" The wrong form gets rejected.
- "Is the premium for one year or two?" Compare the same term.
- "Do you check my personal credit, and does it affect my rate?"
- "Do you need a personal guarantee?" On most small business bonds, yes.
- "What happens if a claim is filed?" Know that you repay the bond company.
- "Is there a renewal fee, and when does it renew?" A lapsed bond can suspend your license.
The catch: a bond isn't protection for you. If a claim is paid, you owe that money back. If you want protection for your own business, that's general liability or another policy.
Keep reading
Starting a licensed trade? See LLC insurance and general liability. Need a registered agent for your license filings? Compare registered agents.
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