What Is a Bond in Finance?
A Bond Form in finance is a debt instrument that represents a loan contract and specifies an obligation to return borrowed funds. Essentially, it is a loan agreement between the Bond issuer and the bondholder and includes the description of the loan and its payment method. When the bondholders purchase a Bond, they "loan" money to the issuers. After the loan matures, the issuer has to repay the loan to the bondholder.
- Bond Certificate.
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What Are the Different Types of Bonds?
There are several types of Bond certificates, and they offer bondholders different options since the specifics of any particular Bond can vary. These can be distinguished depending on the purpose of the bond and its field of application:
- Surety Bond. These are contracts between three parties that guarantee that the Principal will act in accordance with the terms established by the agreement.
- Payment Bond. These are usually obtained by contractors or subcontractors before they begin their work on a construction project. This document guarantees that the contractor will pay the subcontractors, laborers, and material suppliers on time.
- Performance Bond. This written document from a bank or an insurance company ensures payment of a sum of money to the investor in case the contractor fails to fully perform the contract for some reason.
- Bid Bond. It is a specific construction Bond obtained through an insurance company or a bank. It guarantees that the developer or owner in a construction bidding process will be compensated if the contractor fails to honor the terms and conditions of the bid.
- Bail Bond. This is the agreement used in the criminal procedure. The defendant can pay the Bail Bond to be released from jail before the scheduled trial.
What Is the Difference Between a Bond Indenture and a Bond Certificate?
A Bond Indenture is a related legal document that describes the features of the loan, its restrictions, and possible consequences that may be triggered if the issuer does not make timely payments. It is drafted during the issuing process and is produced by the company that issues the Bonds. It is a formal contract signed by the issuer and the bondholders setting all the terms and conditions of every Bond Certificate issued.
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