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What is a surety bond?

Simply put, a Surety Bond is a guarantee. It is a three-party agreement between the Principal, the Obligor and the entity requiring you to obtain a bond - the Obligee, also known as the beneficiary. The Surety Guarantees that the principal will perform as per the contract and that he will step in to indemnify the beneficiary in the event of a loss caused by the principal's default. A Surety Bond also works like a prequalification in a few cases to ensure that the principal is able to participate in a bidding process or the award of a contract.

Who are the Principal, the Obligee and Obligor?

Principal - The principal is the entity required to put up the bond. This could be the contractor, dealer, the franchisee, or the tenant.

Obligee - The obligee, also known as the beneficiary, is the entity that requires the putting up of the Surety Bond. It can be either the project owner, the landlord or the lender.

Obligor - An Obligor refers to the surety company that issues the bond. Bonds or Guarantees as they are also known as, may be required while bidding for a contract or at the time of the award of the contract. Bonds are a form of financial security, and the surety is the entity that backs the bond.

What is the difference between surety and insurance?

Insurance is a two-party relationship where the insurance company assumes the risk of the principal, while a surety bond is a three-party relationship where the Obligor undertakes to indemnify the beneficiary from loss arising from the Principal's contractual default. The Principal however continues to absorb the risk of non-performance. A surety bond protects the Obligee and not the Principal. While an insurance protects you against a risk, Surety Bond guarantees the fulfillment of a contractual obligation.

How much does a Surety Bond cost?

The Guarantee fee varies with the type of Guarantee and the Bond Amount. As such there is no set way for determining the cost of the surety bond.

Are Surety bonds accepted in India? What if the beneficiary refuses to accept a surety bond and insists on a Bank Guarantee or a cash security deposit?

While Sureties are a prevalent practice in many of the developed countries of the world, it is still a new concept in India. Bank guarantees have traditionally been used wherever there was a need for a Guarantee. The beneficiary is not mandated by law to accept a Surety Guarantee an alternative to a Bank Guarantee. However, we can work with you to convince the beneficiary on the structure and the strength of Eqaro's Guarantees, the benefits of the discipline that a surety imposes and the overall efficiency in the management of working capital.

How do I apply for a bond?

Please visit our contact us section, fill out a form and submit the details. Our representative will get in touch with you and assist you right through the process. For rental guarantees, please visit the rental guarantees section.

What happens if there is a call on my bond?

Most of the Guarantees in India are On-demand Guarantees - which means that they must be paid out to the beneficiary immediately upon receipt of the invocation. We will notify you immediately upon receipt of the claim from the Obligee. You may want to reach out to the Obligee and resolve the issues.

However, if the attempt to resolve is unsuccessful and the claim has to be paid, you must provide the payment immediately. In the event that we have to pay out the claim on your bond, you will be required to pay that claim back. However if the Guarantee happens to be a conditional Guarantee, we will investigate the validity of the claim.

If the claim is valid, we will inform you upon closure of the claim

If the claim is valid and there is indeed a default by the Principal in the performance of the contract, the Principal must provide the payment immediately. If the Principal fails to respond or satisfy the claim, we will settle with the Obligee and proceed with collecting the amount paid from the Principal under the indemnity agreement.

What is an indemnity agreement?

An indemnity is a separate agreement executed prior to the issuance of the bond by the Obligor. The indemnity holds the principal responsible for repaying any money paid by the Obligor in the process of settling the claim. It also allows the Obligor the right to recover the losses paid out on behalf of the principal.

When do I have to pay for my Surety Bond?

Guarantees are irrevocable and cannot be cancelled by the Obligor before the expiry of the Guarantee unless the Obligee indicates to the Obligor that the Guarantee is no longer required by the Obligee. Hence the total payment of the guarantee fees have to be made prior to the issuance of the guarantee.