Why Do Businesses Need Surety Bonds?

There are many laws and regulations within the country of Canada that govern businesses and other professionals. If these groups or individuals are caught breaking these laws or fail to abide by the governmental regulations, they’ll wind up in a great deal of trouble. This is why it is absolutely pertinent to familiarize yourself with the Canadian statutes, which govern your business or your line of work.

In many circumstances, you’ll find that bonding will be a necessity. Questions like, What are surety bonds, Why are they required, who requires them and what is required from the businesses owner are always on the mind. We get it, you are new to this. This is why our licensed brokers are there to assist you as these answers are not always easily attainable.

First and foremost, you should learn precisely what surety bonds are and how they work. Once you’ve learned a little more about construction surety bonding in Canada, you’ll already start formulating an ideal as to why they’re required. A surety bond is a type of contract between two individual groups or people. Within this type of scenario, one entity, which is identified as the principal, is responsible for fulfilling an objective within a certain period of time. The other group, which is known as the obligee, is the one that is serviced by the principal.

surety bond fundamentals

The principal is required to perform to their best of their ability, thanks to the presence of the surety bond. If the principal fails to satisfy, the bond helps to ensure that the obligee will be able to take action and recover losses.


No Universal Reason

When it comes to surety bonds, it is often easy to ignore the massive quantity of different bonds and focus on one or two. For instance, some individuals will only focus on construction bonds, while others will immediately think about license bonds. In order to truly understand the specific reason that bonds are required, you must look at the bond in question. As a whole, there is no universal requirement reason. The requirement is set in place for different reasons and you can only find out why by looking at the unique bond that your business must acquire.


Construction Bond Requirements

Now, if you really want to learn why businesses need surety bonds, you need to delve into the specifics of each bond. Construction bond is a term, which is used to identify a handful of different bonds, such as bid bonds and performance bonds. When it comes to the contractor bid bond, the construction contractor is required to obtain the bond, before placing their bid. Why is this the case? There is actually a good reason for this and it does help the contractor.

There are thousands of people in Canada that would love to be able to secure a construction contract. Unfortunately, many of these individuals would not be able to complete the project within a reasonable period of time. Others may not be able to do so in a satisfactory manner. The bond helps to protect the system, while also providing the contractor with credence. Thanks to the requirement, the system remains efficient and the contractor doesn’t have to worry about being undercut, by a company, which will disappear within a few months time.

In the sense of the performance bond, the aforementioned information still applies. The performance bond helps to make the construction contractor seem much more legit and trustworthy. By agreeing to obtain this bond, without being asked, may give you the upper hand. It also helps to prevent a viable project from being taken by an unreliable contractor.


No Bond No Work

Every business in Canada wants to be able to generate sizeable revenue. What else would be the point in running a business? If you concur with this statement, you should know that bonds are more important than you could ever imagine. It is absolutely essential to acquire the right bonds, if you wish to acquire projects, perform your duties, and get paid for your services. If you do not posses the required bonds, it will be illegal for your business to perform its duties! This is truly the most pertinent reason for all Canadian businesses to acquire the bonds, which are required by their province, as well as the Canadian government.


Protecting the Public

If you are considering starting a new business, you should begin by researching the requirements of an upstart business. Of course, nothing is as it initially seems, since there are many hurdles that you will need to jump, before you reach your goal. Not only will you be forced to apply for a small business license, but you will need to apply for a license bond. You must obtain the license bond, prior to applying for your business license, because a copy of the license bond will need to accompany the licensure application.

A license bond is a type of commercial surety bond that ensures the government that you are going to comply with the terms of your business license and the underlying provincial laws. This is basically the only way that the government can protect the public from fraudulent behavior. Business owners that value their business and reputation will comply with the Canadian statute, because they do not want to risk having their business license revoked.


Public and Private Contracts

Any contractor that plans on bidding on a public or private construction project may need to post a surety bond. These bonds ensure the Canadian government or project owner that the contractor will comply with the specifications provided in the contract. If at any time, the contractor falters on the contract, the project owner will have the right to file a complaint with the surety company.

The surety company will investigate the claim and make a final decision of whether or not the contractor failed to comply the contract terms.



At the end of the day, surety bonds might feel like an extra expense with no major benefits. This couldn’t be further from the truth. Surety bonds are not only a necessity, but they help to solidify your business as legitimate. To know more about these bonds, you can get a good start by looking at questions that are asked by most first time bonding applicants by clicking here. If you wish to work and earn money in Canada, it is pertinent to familiarize yourself with and acquire the required bonds, before you get started.


Other frequently asked questions regarding surety bonds