6 Reasons Why Contract Bonding a Business Necessity

A contract bond, or as it is more commonly known, a performance bond, is a three-party agreement of financial credit, that is also known as a bond guarantee. These three-party agreements combine three entities, a principal, an obligee, and a surety; the principal is the party who wants the bond, the obligee is to who the bond is paid, and the surety company provides the bond to the principal. 

The bond is issued to the principal to ensure that they will act in accordance with their contract, and should they default, or fail to act accordingly, the bond will be released to cover damages, losses, and compensate financially. Performance bonds are a crucial part of North American business and a huge element of the construction industry.

This page will hope to offer you six reasons why contract (or performance) bonds are a business necessity.


Performance bonds provide unrivaled security. The entire conception of these bonds was based on security. They can ensure that you will not become the victim of a financial loss if somebody to whom you have contracted a job fails to meet their end of the contract. They are most often used in the construction industry, as in the construction industry, it is very common, unfortunately, for contractors to complete their work poorly and to a low standard. Performance bonds ensure that should the contractor not complete the job to your specifications, that you will not lose finances, and will be duly compensated. 

They will be responsible for paying the bond back to the issuer, which means they will likely be far more careful when it comes to completing the job, as they will not want to find themselves in huge debt to a provider that will offer no sympathy or have any issue with collecting the owed monies.

Simple to Take Out

Performance bonds are very simple to get and quite easy, providing your credit and financial history is all in order. The process works by the party who wants to take out the bond contacting a bond provider, issuing relevant documentation, then waiting for a response. The response time is not often long, and will, as aforementioned, depend entirely on your financial history. If you have poor credit, you will be unlikely to receive a performance bond. They will also check out your previous experience in your field of expertise and will assess your company to see whether or not you have the equipment necessary to complete the job for which you are requesting a bond.

No Assets Needed

Performance bonds are highly unique in that they do not require you to provide any upfront assets as security as most banks do. You do not need to support the bond with cash, either. This means you are able to spend elsewhere and focus on areas of your business that need attention, or to put more money into the project in which you are undertaking. Performance bonds are far less complicated and easy to manage for this reason and a much better solution than more traditional alternatives.


Performance bonds remain valid for the entire duration of the projected construction project, and for a while afterward. They remain valid afterward so that should there be any problems with the construction job, that the principal can be held accountable. This means the obligee has time to take the principal to court and demand financial compensation. This is why they are so sought-after in construction jobs, as they provide a level of security that is unparalleled in the industry. If it were not for the ingenuity of performance bonds, many obligees could lose out at the hands of cowboy builders.


A principal that is willing to take out a surety bond can undoubtedly be trusted. Cowboy builders and unscrupulous contractors will never agree to take out a performance bond, for they know that if they were to not complete the job properly, they would have to pay either way. This is why performance bonds are so important, as they can help you to distinguish between trustworthy and untrustworthy contractors and principals. You should put on your job listing that a performance bond will be required, so you do not need to worry about false leads.

Ease of Access

Performance bonds are a business necessity because of their ease of access. They are very easy to find, and you need only contact a loan provider or an insurance provider to take one out.

This page should have given you six reasons that performance bonds (or contract bonds) are business necessities. Hopefully, it has achieved its purpose, and you know now six things you did not know when you began reading this guide.

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