Surety Bonds
Surety Bond vs. Letter of Credit — Which Should You Use?
A surety bond is a three-party guarantee backed by a bond company. A letter of credit is a bank commitment to pay a specified amount on demand. Both can satisfy bonding requirements — each has tradeoffs.
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What is the difference between a surety bond and a letter of credit?
Surety bond advantages: doesn’t tie up your cash or credit line; lower cost for well-qualified contractors; surety investigates claims before paying (protecting you from frivolous claims); renewable annually.
Letter of credit advantages: instantly payable on demand (banks don’t investigate claims); may be accepted where surety bonds aren’t; useful for contractors who can’t qualify for surety but have bank credit.
Key difference: a bank pays an LOC on demand with minimal dispute process. A surety investigates claims before paying — giving you an opportunity to defend against invalid claims. For contractors with good credit, surety bonds are almost always preferable.
Need a surety bond fast?
Trade Safe helps contractors get bonded same-day in most cases. We work with multiple surety markets to find the best rate for your situation.