Glossary of Business Credit Terms

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Bid Bond

What is a Bid Bond?

As the name implies, the bid bond is a type of surety bond required by the contractors before they can bid on projects. It works as a guarantee that the awardee of the bid will honor the terms of the bid.

Additionally, the bid bond also guarantees that the contractor is financially stable and equipped with the necessary resources to carry out the project fully.

Bid bonds are commonly required on projects that also ask for performance bonds and payment bonds. They are especially common in construction projects.

How does a Bid Bond work?

With a bid bond, contractors avoid submitting low-ball bids to win a contract and then changing the terms later on. Often the contractors are not financially stable and back out of the project before the work get underway. This leave the project owner with no choice but to find another contractor for the task. With a bid bond, the project owner is compensated for the cost difference between the former and the current bidder.

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