How Does a Surety Bond Work?

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What Is a Surety Bond?....5

A surety bond is used in order to satisfy the requirements for funding for a future project. Discover how surety bonds are used to help fund the construction of a house 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 with 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 were 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 you....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 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 of eighteen cents a gallon on behalf of the state. How does the state know that they'll 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 and 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 a 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 'em have on 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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