Types of Surety Bonds

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How Does a Surety Bond Work?....5

Surety bonds are used in order to satisfy the requirements for funding a future project, such as when someone is building a home. Find out how to use a surety bond to insure a payment arrangement with help from a personal asset manager in this free video on the bond market and money management.

Part of the Video Series: Bond Market
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Video Transcript

Hello, I'm Roger Groh at Groh Asset Management. Today we're here to talk about surety bonds, and how you might use them in order to satisfy the requirements for funding for a future project. For instance, if you are going to build a home and you are worried that the contractor may stop halfway through because of lack of payment, how can you guarantee to that contractor that no matter what, they'll be paid? Well, the insurance business has picked up on that need, and will actually guarantee for you, on your behalf, payment to another party for anything you can think of. For funding construction is a good one. If you are trying to appeal a judgment that has been filed against you, where the court has ordered you to pay money but yet you want to appeal it, you don't want to sell your house yet in order to make... to fund that judgment, you may get a bond, a surety bond, to make that happen. You can get a fuel tax bond, where... let's say you're a gas station, you're collecting gas... fuel taxes, at eighteen cents a gallon, on behalf of the state. How does the state know that they're really going to be able to collect from you? Well, they may demand that you get a third party to guarantee payment to the state... sounds reasonable. Could be others... cigarette taxes; we've all seen the stores where they sell cigarettes in volume. Well can you imagine, at two, three, four dollars a pack in tax, what they're going to owe the states where they reside? And how does the state know that they're going to be paid? Well, perhaps to get licensed, in order to sell cigarettes, the state would require that company to get the third party to guarantee payment to the state. They can do that through a surety bond. Almost any payment arrangement can be insured. It's very interesting. But, all of them have one thing in common. It's where a payment is going to be due at some point in the future, and you or someone else, is guaranteeing payment for you. So, I'm Roger Groh, and that's a little bit about surety bonds.

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