Financial guarantee bonds are one of the main types ofsurety bonds. They are indemnity bonds which cannot be cancelled. Their goal is to guarantee all due payments that a party owes to another will be made in full and in due time.
Financial guarantee bonds constitute a three-party contractual agreement. The party that has to get bonded is the principal. The entity that requires the bonding is the obligee. The surety, or guarantor, is the underwriter of the bond, which provides the financial backing.
Because in essence they ensure payments, financial guarantee bonds work much like an extra line of credit for the bonded party. In case they fail to make a payment, the surety can temporarily take over and cover the outstanding amounts to the obligee. For more information on how bond claims are handled, please see the end of this page.