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Understanding Surety Bonds starts by understanding these key terms and definitions. Many definitions have links to further resources as well, so explore the glossary and you'll be a bond expert in no time!
You may also want to see our article What is a Surety Bond?


An individual responsible for managing the affairs of an estate.


A form completed by a surety bond applicant that provides information needed to underwrite a bond request.

Bad Credit

The definition of bad credit can vary widely. For the purposes of surety bonds, a business owner’s credit score is an important factor in determining the cost of a bond. Generally speaking, the higher a credit score, the lower the cost of a surety bond. Surety Bonds Direct specializes in providing surety bonds for those with poor credit.

Balance Sheet

A financial statement detailing assets, liabilities, and equity of an business or individual.

Bank Depository Bond

A bond guaranteeing the deposit of public funds.


A legal status of a person or entity characterized by the inability to repay outstanding debts owed to creditors. Bankruptcy is typically initiated by creditors and determined in a court proceeding.

Bankruptcy Trustee Bond

A surety bond that guarantees that the court appointed trustees will administer the debtor’s estate as directed by the bankruptcy court.


An individual named in an insurance policy to receive proceeds or benefits.

Blanket Bond

A surety bond that covers an employer for dishonest acts committed by employees.

Bond Amount

The maximum dollar amount guaranteed by the surety for a single surety bond. If the principal violates the terms of a surety bond resulting in a loss, this is highest amount the surety and principal are obligated to pay. Also called Penalty.

Bond Form

The official contract executed by the attorney-in-fact for the surety and outlining key information for the specific surety bond such as; the three parties to the agreement, the obligation, and the amount and term of the surety bond.

Bonding Company

The authorized insurance company that serves as surety for a bond. If a principal violates terms of a surety bond, the bonding company is responsible for any loss.

Cancellation Notice Period

A minimum time period of advance written notice required by an obligee before final cancellation of a surety bond.


The maximum surety bond size, or penalty, that can be provided by a surety company.


A negative factor listed on a credit report when a creditor (often times a credit card company) determines a debt is unlikely to be collected. This usually occurs when an account becomes severely delinquent. Learn more about getting bonded with bad credit.


For the purposes of surety bonds, a claim is a formal notice filed by a party alleging damages sustained due to a bond principal’s violation of the terms of a surety bond. The merit of a claim is evaluated by the surety company.


Something pledged as security for a surety bond (typically in the form of cash, real estate or a letter of credit). Some surety companies accept collateral to allow for increased approvals of applicants with bad credit.

Commercial Bond

A surety bond typically required by a local municipality, state, or the federal government to guarantee compliance, financial obligations or completion of a service. These surety bonds are often required as part of a licensing or permitting process.


A court-appointed individual or entity tasked with managing the affairs of an incapable individual (typically due to age or incompetence).

Contract Bond

A surety bond required by construction project owners to ensure the contractor performs work according to specifications and pays subcontractors and suppliers as required.

Court Bond

A court surety bond protects the opposing party in a litigation process by guaranteeing compliance with a court order or execution of a fiduciary duty (e.g. payment of a judgement). Common types of court surety bonds include Appeal Bonds, Replevin Bonds, and Release of Lien Bonds. More information on Court Bonds.


A monetary sum awarded by a court to compensate a party who has been injured by the conduct of another.


A past due account on a credit report. In the credit card industry, a card issuer usually will not report an account as delinquent until over 30 days past the due date. Delinquent accounts over 180 days late become derogatory. Learn more about getting bonded with bad credit.


A negative event on a credit report. Collection accounts, late payments (over 180 days), charge-offs, foreclosures, and repossessions are considered derogatory. Public record items such as bankruptcy, tax liens, and civil judgments are also considered derogatory. Learn more about getting bonded with bad credit.

Effective Date

The date a surety bond becomes active or takes effect.

Employee Retirement Income Security Act (ERISA)

A federal law establishing minimum standards for administration of pension plans to protect the interests of employee participants and their beneficiaries. The act requires that a fidelity bond be in place to cover those responsible for managing the plan. Search for an ERISA Bond


An individual appointed to carry out the wishes expressed in a will.

Expiration Date

The date a surety bond becomes no longer in effect.

Fidelity Bond

A fidelity bond protects and employer from losses due to employee-dishonesty, or fraudulent acts, such as theft of monies or securities.


A person with a legal duty to act exclusively in the interest of another party. A fiduciary bond (also known as a probate bond) is often required of a fiduciary to guarantee performance of the legal duty.

Fiduciary Bond

A bond that guarantees the performance of a fiduciary. Also referred to as a Probate Bond.

Financial Guarantee Bond

A financial guarantee surety bond is one where the surety is required to provide a backstop for a principal’s financial obligations rather than just ensuring compliance with licensing or permit requirements. As a result, these bonds are considered “hazardous” by sureties and must be more carefully underwritten.

Funds Control

A technique sometimes used with contract surety bonds whereby a third party (rather than the bonded contractor) handles the disbursement of funds to subcontractors and suppliers. This ensures funds are available to meet third party obligations.


A person who is legally responsible for the care and management of another who is a minor or otherwise incapable of administering his or her own affairs. More Information on Guardianship Bonds.


An agreement to provide financial reimbursement to another party to help offset a loss or damage incurred. An surety bond applicant must sign the surety company’s indemnity clause as part of the application for most surety bonds.


A formal decision made by a court following a lawsuit. Judgments (such as those imposed by creditors) can adversely impact the amount an individual will pay for a surety bond. Learn more about getting bonded with bad credit.

License and Permit Bond

A type of surety bond required by law prior to obtaining a license or permit to undertake a certain business activity. There are hundreds of different types of license and permit surety bonds required by various city, county and state governments nationwide.


A claim on another’s property arising from the need to satisfy an obligation or debt. Learn more about getting bonded with bad credit.


For the purposes of surety bonds, a loss is defined as a monetary sum paid, or reserved for payment, by a surety company to cover a claim filed against a surety bond.

Maintenance Bond

A surety bond that is purchased by a contractor as a requirement to protect the project owner from defects, faulty materials, and poor workmanship for a certain period of time after the project is complete.


A person under the age of legal competence. The age criteria varies but typically ranges between18 to 21 years old.

Miscellaneous Bond

A commercial surety bond type that does not fit into the classification of a license and permit bond.

Notary Public Bond

A surety bond required by a state of a person authorized to certify documents, administer oaths, attest to authenticity of signatures and other official acts as defined by the individual state guidelines. More Information on Notary Bonds.


The obligee is the entity requiring the surety bond in order to protect itself or other related parties. In the event that a loss results due to improper actions of the bond principal, the surety company is obligated to cover the loss, protecting the obligee from liability.

Open Penalty

A type of bond where the surety has no limit on its liability.


A law or regulation enacted by a municipal authority.


The maximum dollar amount guaranteed by the surety for a single bond. If the principal violates the terms of a bond resulting in a loss, this is highest amount the surety and principal are obligated to pay. Also called Bond Amount.

Performance Bond

A surety bond guaranteeing that a contractor will complete a job on time and in accordance with the terms of the contract.


The person or business who brings suit (accuses another of wrongdoing) in a court of law.


The cost of a surety bond for a specified term. Premium usually excludes any taxes and fees.

Premium Financing

Payment of all or part of a surety bond premium with money borrowed from an outside finance company. This allows for the cost of a surety bond to be spread out over time. Careful consideration should be given to the interest rate charged and other terms of the premium finance contract. Learn more about Premium Financing.


The bonded individual and/or business. The principal purchases the surety bond and undertakes an obligation to perform an act as promised.

Pro rata

A method of assigning an amount to a fraction. In surety, pro rata is commonly used to calculate the surety bond premium for a portion of the year that the surety bond will be in effect (i.e. number of bonded days divided by 365 times annual premium).

Probate Bonds

Probate bonds guarantee the duties of guardians, administrators, trustees, and executors. These surety bonds are required for minors, the estate of deceased persons, and incompetent persons. Probate bonds provide a guarantee to the courts and the heirs of an estate that assets are properly managed and the court probate process is administered in accordance with legal requirements.

Public Official

A person in a position of official authority that is conferred by a state or other official government entity. More information on Public Official Bonds.

Public Official Bonds

A bond that guarantees protects against violations of duty committed by a public official. More information on Public Official Bonds.


The premium charged for a surety bond as a percentage of the surety bond penalty. Surety bond rates are determined by underwriters based on the expected loss rate associated with the bond type and applicant risk profile. Rates are governed and approved by state insurance departments.


The continuation of in-force status of a surety bond for a subsequent term.


A legal action to recover personal property wrongfully taken or held by the defendant. More information on Replevin Bonds.


A provision modifying certain terms of a surety bond. Also called an endorsement.

Small Business Administration

The Small Business Administration (SBA) is a United States government agency that provides support to small businesses and entrepreneurs. The SBA has programs to assist small businesses and minority owned contractors in obtaining contract bonds. See for more information.


A person or organization that guarantees the action of another. As it relates to surety bonds, the surety (sometimes referred to as the bonding company or surety company) is the authorized insurance carrier that guarantees the performance of the surety bond principal.

Surety & Fidelity Association of America (SFAA)

A trade association offering resources and general information about developments in the industry.

Surety Bond

A surety bond is a written agreement between three parties in order to guarantee compliance, payment, or performance of an act. A government entity or project owner (obligee) requires that a person or entity (principal) secure a guarantee from a surety company (surety). If the principal fails to perform the act as promised, the surety is contractually liable for losses sustained. A "surety bond" is a broad term used for thousands of different types of bonds across the country. Specific types of surety bonds are often identified by the industry type. For example, contractor bonds, auto dealer bonds, public adjuster bonds, and many more. Please see our Surety Bonds Learning Center for more detailed information on what surety bonds are, how they work and how much they cost.


As it relates to surety bonds, the term is the length of time that the bond is in effect.

Treasury Listing

A listing of approved sureties (or surety companies) provided by the Department of Treasury. These companies are authorized to write federal surety bonds.


A person or firm authorized to administer assets or property for the sole benefit of a third party (beneficiary).


An individual who evaluates the risk of loss to the surety company associated with a particular surety bond and applicant.