Surety and cash bonds are financial guarantees that you will do what you promise. If you post a bail bond, it's a guarantee you'll show up for court or lose your money. In business deals, you put up a bond in case you fail to complete a contract. In either case, if you fail to deliver what you promised, the bond is forfeited.
With a cash bond, you put up the entire amount of money in question, or find someone to do it for you. If you are posting bail for a family member, for example, a judge sets the bail amount and you scrape together the money. If the defendant shows up in court, you get the money back. If you can't afford that, you can pay a bail bondsman to put up the cash for you.
A surety bond works like insurance: You pay a third party to guarantee you'll deliver on a contract or a promise. A bail bondsman might use a surety bond company to provide bail rather than use cash, for instance. If your company wants to get into government contracting, surety bonds are standard. Bid bonds guarantee you'll accept the job if you win the bid; performance bonds pay if you fail to meet the contract terms; payment bonds are a guarantee that you'll pay off your subcontractors and suppliers.
Surety bonds let you commit to projects where a cash bond would be out of the question. If you win a federal contract worth $100,000 or more, for instance, you have to use a surety bond. You pay the surety firm anywhere from 0.5 percent to 2 percent of the bond price, depending on the size of the project and your company's credit rating. If the company has to pay the bond, it will sue you to recover its money. Surety bail bondsman are the only ones who can post bail in federal court or immigration cases.
If you can put up a cash bond yourself, it's cheaper than paying for a surety bond. Even if the defendant gets convicted, you're still entitled to receive your money back as long as he showed up in court, though some states let the government take out fines and court costs. If you use a bail bondsman, you may have to put up as much as 10 or 15 percent of the bail cost, which the bondsman keeps as a fee after the case is over.
- Why Do People Buy Bonds?
- What Is a Prospectus for Bonds?
- What Is the Meaning of Non Convertible Debentures?
- Differences Between Callable Bonds & Noncallable Bonds
- How to Calculate Bond Interest Payments
- About Short-Term Bond Funds
- What Is a Subordinate Debentures Bond?
- How Do I Cash in My Bearer Bonds?