• A surety bond is a type of contract between an owner and an organization that agrees to work on the owner's project. Like a type of insurance, the surety bond pays the owner for time and materials lost if the contractor fails to do the required work. Unlike insurance, the contractor must ultimately pay if the bond is invoked, and the bond has specifics for the project that must be fulfilled. There are several types of limits for surety bonds.
  
  

Monetary Limits

• Some surety bonds are backed by the federal government, especially surety bonds for small businesses. The government backs these bonds to help small businesses grow and appeal to owners who might otherwise use a larger company. The government limits these surety bonds to a certain amount, essentially limiting what types of projects small businesses can pursue. The limit, as of 2009, is $5 million.
  
  

Availability

• A contractor cannot just create a surety bond, even if it is a large company. Surety bonds need a surety agency, an authorized organization that creates the bond with the contractor and issues it. This agency also inspects the project if the owner has any complaints and decides if the bond requirements were fulfilled or not. Many insurance companies have surety branches for this work.
  
  

Legal Limits

• A surety bond specifies what type of project is underway, the materials used, the amount contractors are paid and other types of information. Owners must follow these specifications when they demand payment from the bond. They cannot go outside the language of the bond when claiming that the contractor did not fulfill the agreement.
  
  

Guarantee Options

• When a surety bond, especially a performance bond governing work, is called upon, the owner often has only limited options. The surety agency can provide another contractor to complete the job, the owner can select an entirely new contractor, or the owner can do the work, which is paid for by the surety agency. An owner must choose between these options.