A surety bond is a contract between three parties — the principal, the surety and the obligee - in which the surety financially guarantees to an obligee that the principal will act in accordance with the terms established by the bond.
A principal’s “obligations” could mean complying with state laws and regulations pertaining to a specific business license, or meetings the terms of a construction contract, depending on the type of the surety bond.
If the principal fails to meet their agreed upon obligations with the obligee, the surety may be required to resolve the dispute by paying a claim to the obligee. It is in this sense that a surety bond is similar to a form of credit extended to the principal by the surety.