Understanding The Surety Bond – A Complete Beginner’s Guide

Let’s Begin 🙂

There are thousands of Canadians who will have to learn about surety bonds at some point or another. Bonds are utilized for a large number of different purposes and in an array of different situations. Although many do not know it, you do not need to run a business, in order to need a bond. So what precisely is surety bonding and when will it be a necessity? Within this guide, you’ll be able to learn all about Canadian surety bonds.


In order to fully understand the bond, you should take the time to analyze its definition. The surety is a promise and not considered a type of insurance. Within the bond, the surety agrees to make amends to a second party, if the principal is unable to fulfill their duties.

Understanding The 3 Parties

In surety, there are three parties. Each party is given a name and they include surety, obligee and principal. Below, you’ll find a breakdown of each.

  • Surety – The surety is the group or company, which has issued the surety. They are responsible for handling disputes.
  • Obligee – The surety bond provides protection to the obligee. If the principal is unable to satisfy the initially contractual standards, the obligee will be able to file a complaint with the surety to recover damages.
  • Principal – The principal is required to get the bond. They’ll pay a specific amount of money to acquire the bond and will agree to fulfill their duties according to the contract.

When Is It Used?

Although many people do not know it, surety bonds are widely used throughout the country of Canada. It is true that construction bonds, such as bid bonds and performance bonds, are most common, but the list continues on and on. In fact, the mass majority of professionals within Canada will be required to obtain a license bond, before they’ll be able to acquire their professional license. Also, bonds are commonly used when a company or entity serves the public. And finally, courts often require surety bonds for various reasons.

Construction Bonds

Canadian’s construction industry is currently booming. The surety companies, which offer construction bonds, have seen an increase in visitors as well. This is the case, because contractors almost always need a bond, before they can even secure the rights to a job. In order for contractors to place their bid on a job, they’ll need to secure a bid bond which they can get from an insurance company such as RBC. Once they’ve managed to secure the job, they’ll most likely be required to obtain other bonds, such as performance bonds and supply bonds. The performance bond protects the project owner, while the supply bond is used to protect the companies, which provide materials to the project.

License Bond

If you wish to obtain your professional license, it is most certain you’ll be required to obtain a license bond. The Canadian government has put these guidelines in place, in order to better protect the government and prevent untrustworthy individuals from pretending to be professionals. An array of different professionals will need bonds, such as appraisal companies, auctioneers, automotive deals, and even collection agencies.


Once you’ve better familiarized yourself with surety bonds, you’ll find that they’re not all that difficult or frightening. However, they are diverse and used for many different purposes. Although you may not need a bond now, it is still a good idea to learn about them, because you may be required to do so in the future.

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