• Learn about the advantages associated with obtaining a surety bond for your investments.money money image by Valentin Mosichev from Fotolia.com
  
  When investing money outside of the financial marketplaces, many people obtain something called a surety bond. A surety bond is used to guarantee that a party will perform their obligation as contracted. If for some reason the party defaults on completing the obligation, then the surety bond will allow the initial investor to recoup some or all of their money. Essentially, a surety bond is a way to mitigate risk. Surety bonds are popular in the construction industry where a developer needs to make sure a contractor completes the job so that they can sell the product which has been developed.
  
  

Increased Borrowing Capacity

• When a borrower is obtaining a loan, they often have to submit financial statements which detail the overall health of their balance sheet. The lender then makes a determination based on the amount of money they wish to borrow as compared with their corporate credit rating and history. By having a surety bond in place, the lending institution might be apt to lend more money because they know that in the case of default they will be repaid.
  
  

Protect Capital

• When an investor makes a capital investment, they are placing that money at risk. The amount of risk depends on the project. Many projects do not have value unless they are wholly completed. Therefore obtaining a surety bond for completion will guarantee that the capital is either spent on the project or returned to the initial investor.
  
  For instance, say a municipal government hires a company to fix the roads. The company digs up half the road before they go bankrupt. If there is no surety bond, and the contractor has been paid and there is no security bond in place, the taxpayers have lost their money. However, if there is a surety bond in place, then the taxpayers will be made whole by either the completion of the job or the restoration of their funds.
  
  

Low Cost

• Without a surety bond in place, many companies would be forced to freeze a large portion of their assets to cover a default on a project. This can severely impact a company's growth. By obtaining a surety bond for a business or project, the amount of money needed for cash reserves is limited. The relatively low cost of obtaining these bonds will allow the company to continue to operate without cutting into the bottom line of the business.