Commercial bonds, also known as non-contract or miscellaneous surety bonds, are required of individuals or businesses by state, municipal or federal ordinance or regulation.
A commercial bond is an agreement under which one party, the surety, guarantees to another party, the obligee, the performance or compliance of an obligation by a third party, the principal. Generally, commercial bonds serve the purpose of protecting the general public that interacts with the bonded principal. The length of time on these bonds is usually for a 12 month term. They may be renewed for subsequent one year terms. Most of these types of bonds have set amounts. When a valid claim is made on a commercial bond, the surety who issued the bond will make payment to settle the claim. The surety, however, will attempt to recoup its losses from the principal who is ultimately financially liable. It is in the principal's best interest to resolve the issue that could result in a claim on their bond before a claim is made.