A bond is a financial instrument used as a form of guarantee or promise. It might serve as a guarantee that a suspected criminal will show up for a court hearing, or as a guarantee that a contractor will complete a project in accordance with his contract. Each type of bond requires some type of backing, or collateral, which generally comes in the form of cash. The cash can be provided by an individual or by a surety company acting on behalf of individuals or companies.
Overview of Cash and Surety Bonds
The biggest difference between a surety and cash bond is that a surety bond involves three parties, while a cash bond involves only two parties. Consider a bail bond of $10,000 as an example. With a cash bail bond, the defendant or one of his family members pays the entire $10,000 in cash to the court or jail. When the defendant shows up for court, he gets his $10,000 back, less any fees charged by the court.
With a surety bond, the defendant hires a surety company to pay the bail money. In exchange for putting out the $10,000, the surety company charges a fee to the defendant, often 10 percent of the bail. When the defendant shows up for court, the bail company gets the $10,000 back from the courts, and the defendant gets some portion of his 10 percent payment back, less any fees charged by the bonding company.
Advantages of Cash Bonds
Cash bonds are relatively simple and easy to understand. The defendant simply puts up the cash and gets released pending the trial. He gets the majority of his money back afterward, less minor court costs and fees. There is no need to contact a surety company or attempt to qualify for a bond.
Disadvantages of Cash Bonds
The biggest disadvantage of a cash bond is the need to come up with a large amount of cash. Many people don't have access to large quantities of cash, which could leave them stuck in jail pending a trial. Those that do come up with the cash may have problems with liquidity while waiting to get the cash back. In some parts of the country, even if the defendant shows up for court and wins his case, he may not get all of his cash bond refunded. Some districts take out any money owed to the state or county from the bail, which may include child support payments, back taxes or court fees.
Advantages of Surety Bonds
The primary advantage of a surety bond is that the defendant does not have to come up with enough cash to cover the entire bond. He simply pays a small percentage to the bond company and may get part of this payment back. If he shows up for court, he has no cash at risk for things like back child support payments or taxes.
Disadvantages of Surety Bonds
Surety companies don't automatically grant bonds to anyone who asks. Instead, they require people to apply for the bond, then weigh the potential risks and returns before deciding to issue the bond. People with poor finances may not qualify, particularly for non-bail bonds, like those associated with construction or licensing.
Surety bonds also have a higher fee associated with them than cash bonds. For example, a defendant may have to pay a small fee to the court when using a cash bond, but he has to pay both court fees and surety company fees when using a surety bond.
- prison image by Albert Lozano from Fotolia.com