Reference
Surety bond glossary.
The words that show up on a bond, an application, or an underwriter's email, in plain English. Written for California contractors and businesses.
- A.M. Best rating
- A financial-strength grade for insurers and sureties. Obligees on public and larger private work often require an A-rated surety. We place your bond with strong, admitted markets.
- Aggregate limit
- The total amount of bonded work a surety will back for you at one time, across all open projects. Together with the single limit, it defines your bonding capacity.
- Bonding capacity
- Bid bond
- A contract bond that guarantees you will honor your bid and furnish the performance and payment bonds if you win. Usually carries no separate premium as part of your program.
- Bid bonds
- Bond amount (penal sum)
- The face amount of the bond, the most a valid claim can pay out. It is not what you pay. Your cost is the premium, a percentage of this figure.
- Bonding capacity
- How much bonded work a surety will support for you, expressed as a single-job limit and an aggregate limit. Set from your financials, experience, and track record.
- Surety bonding capacity
- CA DOI
- The California Department of Insurance, which licenses surety bond brokers. MM Bonding holds CA DOI License #6009105.
- Cancellation
- Ending a bond before its term is up. Many bonds are non-cancelable or refund on a prorated basis, and license bonds usually require notice to the obligee. Terms vary by bond.
- Refunds & cancellations
- Claim
- A demand for payment under a bond, made by the obligee or a protected party. If the surety pays a valid claim, you reimburse the surety under your indemnity agreement.
- Claims & lapses
- Collateral
- Security a surety may require on a higher-risk file, such as cash or an irrevocable letter of credit, held against potential loss and released when the risk clears.
- Surety bond collateral
- Commercial bond
- A broad category of non-contract surety bonds required by a government agency or by contract, such as license, permit, notary, and court bonds.
- Commercial & specialty bonds
- Contract bond
- A surety bond tied to a specific construction contract: bid, performance, and payment bonds. Guarantees the job and the payment of subs and suppliers.
- Contract bonds
- Contractor license bond
- The $25,000 surety bond every CSLB-licensed California contractor must carry under BPC §7071.6. Protects consumers and employees, not the contractor.
- Contractor license bond
- Court (judicial) bond
- A bond a court requires in a legal proceeding, such as a probate, guardianship, conservatorship, or appeal bond, guaranteeing a party performs a court-ordered duty.
- Court & probate bonds
- CSLB
- The Contractors State License Board, California's licensing authority for contractors. It sets license requirements and receives the contractor license bond on Form 13b-1.
- Disciplinary bond
- A bond the CSLB Registrar requires to reinstate a license after a disciplinary action. At least $25,000, up to ten times the license bond, held for at least two years.
- Disciplinary bond
- Fidelity bond
- Coverage that protects a business against loss from employee dishonesty or theft. Unlike most surety bonds, it protects the bondholder rather than a third party.
- Fidelity bonds
- Funds control
- A neutral third party that disburses a job's funds to labor and suppliers as work progresses. It lowers the surety's risk and can unlock a bond a file couldn't get alone.
- Funds control
- Indemnitor
- A person or company that signs the indemnity agreement and is responsible for reimbursing the surety. Business owners and sometimes their spouses sign as indemnitors.
- Indemnity agreement
- The contract you sign with the surety agreeing to reimburse it for any valid claim it pays. Owners typically sign a personal guarantee as indemnitors.
- Indemnity agreement, explained
- License bond
- A bond required to hold a license, guaranteeing you follow the laws that govern your trade. The contractor license bond is the best-known California example.
- Contractor license bond
- Obligee
- The party a bond protects and who can make a claim, such as the CSLB, a project owner, or a government agency. One of the three parties to every surety bond.
- Payment bond
- A contract bond that guarantees subcontractors, laborers, and suppliers get paid. Usually issued alongside a performance bond on public and larger private work.
- Payment bonds
- Performance bond
- A contract bond that guarantees the project owner you will complete the work per the contract. If you default, the surety ensures completion, up to the bond amount.
- Performance bonds
- Permit bond
- A bond a city, county, or agency requires to pull a permit, guaranteeing you meet the permit's conditions, such as restoring the public right-of-way after the work.
- Permit bond requirements
- Principal
- The party who buys the bond and must perform the underlying obligation, that is, you, the contractor or business. One of the three parties to a surety bond.
- Rider
- An amendment to an existing bond, used to change the bond amount, the name, or another term without issuing a brand-new bond.
- Soft vs. hard credit pull
- Most surety quotes use a soft credit pull, which does not affect your score. A hard pull, which can, is rarely needed for standard license bonds.
- How credit checks work
- Surety
- The company that backs the bond and pays valid claims, then seeks reimbursement from you. The third party, alongside the principal and the obligee.
- Surety bond
- A three-party guarantee among the principal, the obligee, and the surety. It protects the obligee and the public, not the principal, and you repay any valid claim.
- How surety bonds work
- T-listing (Treasury listed)
- A surety approved by the U.S. Treasury (listed in Circular 570) with a set underwriting limit. Federal contracts require a Treasury-listed surety.
- Underwriting
- How a surety evaluates your bond: reviewing credit, experience, and financials to set approval, price, and any conditions. It applies to every bond.
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