Overview
A private bond is a commercial surety bond posted to satisfy a private party rather than a government agency. A landlord, franchisor, supplier, or other counterparty may require it to guarantee performance of a contract obligation, often in place of an irrevocable letter of credit that would tie up the principal's bank line.
The obligee sets the bond amount and the bond form. Because the bond guarantees performance to a private party, underwriting reviews the principal's financials and credit much as it would for a contract bond.
It is a surety bond that protects the private obligee, not the principal. A paid claim is reimbursed to the surety under the indemnity agreement.
Who needs this bond
Businesses required by contract to guarantee performance to a private obligee in lieu of an irrevocable letter of credit.
Typical amount and term
Bond amount set by the obligee. Premium 1 to 3 percent of bond amount for well-qualified principals.
What this bond costs
Your premium is a small percentage of the bond amount, set by underwriting. The biggest drivers:
- The bond amount the obligee requires
- The principal's business and personal financials
- Credit and time in business
- The nature of the underlying obligation
| Scenario | Bond amount | Estimated premium |
|---|---|---|
| Well-qualified principal | $50,000 bond | around 1 to 2 percent per year |
| Average profile | $100,000 bond | around 2 to 3 percent per year |
| Larger obligation | $500,000 bond | priced on financial strength |
Figures are illustrative premium ranges, not quotes or statutory amounts. Your rate depends on the bond amount your obligee requires and your underwriting profile.
What you will need
- Copy of the bond form the obligee will accept
- Business and owner financials
How to apply
- Send the obligee's bond form and bond amount
- Underwriting review in 1 to 3 business days
- Bond issued and delivered to the obligee
How a surety bond differs from insurance
A private bond is a surety guarantee that protects the private obligee against the principal's default. It is not insurance on the principal's own losses, and unlike a letter of credit it does not freeze the principal's bank line. The principal repays the surety for any valid claim.
Frequently asked questions
What is a private bond?
A commercial surety bond that guarantees performance to a private party, such as a landlord or franchisor, instead of a government agency.
Why use a bond instead of a letter of credit?
A surety bond can satisfy the same requirement without tying up the principal's bank line, which keeps working capital available.
Who sets the bond amount and form?
The private obligee sets both. The surety reviews the requested form before issuing the bond.
What does underwriting look at?
The principal's financial strength and credit, similar to a contract bond, scaled to the size of the obligation.
More additional bonds
Reviewed by the Cornerstone Surety bond team. Last reviewed 2026-06-17.