What is a surety bond?
Every company that bids for public works, imports goods or signs a contract with advance payments faces the same requirement: proving to a third party that it will deliver. For decades that guarantee was almost always resolved with a bank guarantee. A surety bond is the alternative that increasingly takes its place without taking up the credit line.
Surety insurance is governed by Article 68 of Spain's Law 50/1980 on Insurance Contracts. Under it, the insurer undertakes to indemnify a third party —the insured or beneficiary— when the policyholder fails to meet its legal or contractual obligations. Three parties are therefore involved: the party arranging the guarantee (policyholder), the company issuing it, and the beneficiary who demands it.
It is worth fixing the concept from the outset: it is not insurance that protects the party arranging it. It is a guarantee in favour of a third party. If the surety is called, the insurer pays the beneficiary and then recovers the amount paid from the policyholder. The instrument transfers the guarantee to the insurance market; it does not remove the underlying liability.
Does your company need to post guarantees on a recurring basis? Request a review with no obligation and we will assess which surety structure fits your activity.
Types of surety bond
The same insurance line covers guarantees with very different purposes. These are the most common types in the corporate field:
| Type of surety | What it guarantees |
|---|---|
| Definitive (performance) guarantee | The correct execution of a contract already awarded (works, supply or service). |
| Provisional (bid) guarantee | That the bidder maintains its offer during the tender process. |
| Warranty (technical) guarantee | Proper operation during the guarantee period after delivery. |
| Customs bond | Tax and tariff obligations before the customs authority. |
To these are added other frequent forms: advance payment bonds (guaranteeing the return of sums paid in advance), off-plan deposits in property development, or guarantees required by sector regulations. In each case, the scope and exclusions are governed by the terms of the policy and the issuing company; not all types are available from every insurer or for every risk profile.
Issuance is not automatic. The company assesses the policyholder's solvency —balance sheet, accounts, track record— before taking on the risk, much as a credit institution examines a guarantee. The difference lies in where that guarantee has an impact.
How does it differ from a bank guarantee?
This is the question that decides many transactions. A bank guarantee and a surety bond perform the same legal function —guaranteeing a third party— but they have different financial effects.
The structural difference: a bank guarantee uses up a risk line and is recorded in the CIRBE (the Bank of Spain's Central Credit Register). In other words, it reduces borrowing capacity before financial institutions. A surety bond does not count as financial risk in the CIRBE, so it preserves the company's borrowing capacity for what it really needs: working capital, investment or growth.
For a large account holding several live guarantees at once, that distinction is far from minor. It frees up bank capacity and diversifies the sources of guarantee, avoiding concentration in a single institution.
There is a second operational nuance: surety insurance is usually arranged through a broker with access to several companies specialising in this line, allowing risk appetite and terms to be compared. Here the broker's independence is decisive: it does not place business where it has ties, but where the programme fits best. You can see how we handle that mandate in independent brokerage.
YMYL note. We do not claim that a surety bond is always cheaper or more advantageous than a guarantee: it depends on the company profile, the amount and the insurer. We assess each case before recommending a route. Let us discuss your situation.
Surety bonds in public procurement
The natural ground for surety is public procurement. Spain's Law 9/2017 on Public Sector Contracts expressly accepts surety insurance as a valid way to post the guarantees required in a tender, alongside cash, a bank guarantee and price retention.
In practice two guarantees are involved:
- Provisional guarantee (art. 106 LCSP): ensures the bidder maintains its offer. It is now exceptional; the contracting body only requires it on justified grounds.
- Definitive guarantee (art. 108 LCSP): the most common. The successful bidder posts it to answer for the correct execution of the contract. It is usually set as a percentage of the award amount, as stated in the tender specifications.
Actual acceptance —form, amount, terms— always depends on the specifications of each tender and the contracting body. That is why the requirements should be reviewed before committing to a guarantee, not after. An error in the surety form can rule out a technically flawless bid.
Beyond the public sector, surety also answers private requirements: business-to-business contracts with advance payments, supply guarantees, obligations before concession holders or developers. You will find where this line fits within our full range of cover areas for large accounts.
Surety is not the same as trade credit insurance
This is the most common confusion, and it is worth clearing up. Both lines share a family —"Credit and Surety"— but they protect opposite parties:
- Trade credit insurance protects your company against non-payment by your clients. You are the insured and the beneficiary.
- A surety bond protects a third party (the authority or client) against your non-performance. You are the policyholder; the beneficiary is someone else.
Put another way: with credit insurance, you get paid if others fail you; with surety, a third party gets paid if you fail. They are different tools, with opposite purposes, that often coexist within the same programme for a large account. Reviewing them together is part of a broker's work.
Frequently asked questions
Can a surety bond be used to bid for public contracts? Yes. Spain's Law 9/2017 on Public Sector Contracts accepts surety insurance as a valid way to post the provisional and definitive guarantees, alongside a bank guarantee, cash and price retention. Actual acceptance depends on the tender specifications of each contract.
How does it differ from a bank guarantee? A bank guarantee uses up a risk line and is recorded in the Bank of Spain's CIRBE; a surety bond does not count as financial risk before credit institutions, so it preserves the company's borrowing capacity. This is a structural difference, not a promise on cost.
What is the difference between surety insurance and trade credit insurance? Trade credit insurance protects the insured against non-payment by its own clients. A surety bond guarantees a third party (the authority or client) that the policyholder will meet its obligations. They are different lines with opposite purposes.
Who pays if the surety is called? The insurer indemnifies the beneficiary first and then recovers the amount paid from the policyholder. A surety bond does not release you from your obligation: it transfers the guarantee, not the debt. The exact scope is governed by the terms of each policy.
New Brokers is an independent insurance broker registered with the DGSFP under code J0140. This content is for guidance only and does not constitute binding advice; cover, guarantees and terms are governed by each policy and company. We work under the client's mandate, with access to the whole market —including Lloyd's— and defence in the event of a claim.
Do you post guarantees or bonds for your activity? Request an analysis of your surety programme. We compare the market for you.