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A Close Overview of the Functionalities of a Surety Bond

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Contractual agreements have become the order of the day in the current world. If anyone requires a particular job or activity performed by a certain company, they need to get into an agreement that the company would perform the activity, and the recipient of the service would pay at a specific period. However, a lot of individuals have fallen victims of their trust whereby they trust that their partners in the contract would heed to their promise, only to realize that they were cynical. For this reason, the law has required that if any two parties want to get into a contract, the party that is obliged to deliver the services should take up a surety bond. This serves as a protection to the obligee in case the principal fails to honor their agreement. 

In such situations, the obligee receives compensation that corresponds to the amount of money that they are likely to lose in case the principal breaches their contract. However, the surety bonds involve a third party, who acts as the witness and the guarantor of the principal such that in such situations whereby the principal fails to honor their agreement, they would be liable for the losses incurred by the obligee. In most circumstances, the banks take up the role of the guarantor, whereby they receive premium payments from the principal in return for the surety. However, the insurance companies in the United States have started providing contractors with surety bonds as part of their insurance products. This had made access to these products more comfortable than in the past when only the surety companies used to offer the same. 

In Arizona, things have not been any different regarding the access to surety bonds. For instance, to purchase any surety bonds scottsdale az, a contractor only needs to visit either a surety company, an insurance company or a bank, with all the necessary documentation and they walk out with smiles on their faces. One of the factors that the firms that offer surety bonds look for is the credit score of the principal. This helps them to assess and make a rational judgment regarding the ability of the principal to meet the terms and conditions of the contract and hence estimating the risk involved in the business. Contractors with bad credit history are more likely to breach their contracts with the recipients of their services, and hence the guarantor would demand more premium for the bond. 

One remedy that the guarantors take whenever they encounter a principal with poor credit history, they tend to request them to put forward collateral that would ensure that they would not suffer a total loss in case the principal breaches the contract out of negligence. On the other hand, the obligee seeks to get promissory from the guarantor indicating that they would be responsible for the losses that would be incurred in the case that the principal fails to honor the agreement due to whatever reasons. With such conditions, the obligee feels safe and comfortable to enter into an agreement with the principal since they are protected from the possible financial losses.



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