What Is a Surety Bond in Texas?

While sometimes considered a form of insurance, a surety bond is not quite the same. A surety bond ensures that a business or individual fulfills professional requirements. This might be the terms of a contract or the ethical regulations of a profession. Each state has its own rules and regulations for surety bonds, and Texas is no exception.

What is a Surety Bond in Texas?

A surely bond is not one thing, but many. The basic premise is that someone puts up money to ensure that certain obligations are fulfilled. If the obligations are not fulfilled at the right time and in the proper manner, the money is forfeited. A common example is a bail bond. Here, a bond agent will pay a defendant's bail to ensure his release from prison pending trial. The bail agent typically asks for collateral against the bail money, such a real estate deeds. If the defendant does not show up in court, the bail money is forfeited to the court and the bail agent would foreclose on the real estate to recover his losses.

Texas has a wide variety of surety bonds that fall into several broad categories. Besides bail bonds, you may come across construction bonds, which ensure that construction contractors deliver the services promised in a contract, and license and permit bonds, which ensure that professionals working in a field adhere to professional and ethical expectations.

How Do You Get Bonded?

Bonds are offered through private companies in Texas. Some of these are insurance companies that also offer surety bonds. Others are companies, such as bail agents, that specialize in surety bonds. These companies can assist firms wondering what types of surety bonds are required to legally do business in the state. The Texas Department of Insurance keeps a list on its website of companies that offer surety bonding.

Understanding the Surety Bond by Industry

Types of bonds and requirements for being bonded vary by industry. Industries requiring surety bonds include health spas, automotive dealerships, telemarketers, collection agencies and general contractors. Texas-based businesses must apply to the state agency overseeing their trade for a bond. For example, auto dealers must apply to the Department of Transportation – Motor Vehicle Division while talent agencies must apply to the Texas Department of Licensing and Regulation.

Pricing a Surety Bond

The price of a surety bond is a percentage of the amount of the bond, and that percentage varies by industry. Bail bonds, for example, cost around 10 percent of the bond's value. So if bail was set as $30,000, you would pay $3,000 to purchase a bond. High risk bonds like construction come in around the same. For license and other bonds, you may be looking at closer to 1 to 3 percent, depending on company credit and financials. The total amount necessary for bonding varies widely between industries.