Every business owner juggles a lot of tasks and responsibilities every day. Aside from keeping everything afloat, they also process permits, licenses, and insurance to protect their brand. However, if a business owner wants to run things smoothly and successfully, there’s one more thing to think about — surety bonds.
What are surety bonds, and why do small businesses need them? Keep reading to find out.
Surety Bonds: What Are They?
Surety bonds generally involve three parties: obligees, principals, and sureties. Obligees are protected by this bond. Principal refers to the party who is required to perform the contractual obligations. Surety is the party who guarantees the performance of the principal’s obligations.
There are three types of surety bonds:
- Contract bonds are required for construction projects and other types of contracts. Contracts guarantee the performance of the work by the contractor.
- License and permit bonds are required by many businesses, such as contractors, in order to obtain a business license. All local, state, and federal laws will be followed by the business under these bonds.
- Court bonds are required by individuals who are involved in legal proceedings. As a result, the individual is guaranteed to appear in court and comply with any orders issued by the court.
Why Do You Need A Surety Bond?
There are many reasons why you might need a surety bond. Here are the six common reasons:
1. You Have A Publicly-Funded Construction Project
If you are bidding on or working on a publicly-funded construction project, there is a good chance that you will be required to have a surety bond. Generally, bonds like these are designed to protect the public entity funding the project if you, the contractor, fail to complete the work as specified in the contract.
2. You Want To Protect Your Business
Having a surety bond in place can also help protect your business in the event that something goes wrong with a project. If you are found to be at fault, the company that issued the bond will step in and cover any damages or losses up to the bond amount. This can help limit financial liability and protect your business from potential ruin.
3. Your Industry Requires Bonds For Operations
In some industries, surety bonds are simply a cost of doing business. If your industry requires bonds for operations, you will need to obtain one to stay compliant and keep your business running.
Surety bonds are commonly used in construction, where they are often referred to as performance bonds. They are also used in many other industries, such as transportation, manufacturing, and retail.
4. Your Client Requires Them For Contracts
In some cases, your client may require that you have a surety bond in place before they enter into a contract with you. This is especially common in the public sector, where bonds are often used to protect taxpayers’ money.
5. You Offer Benefits To Your Employees
If you offer benefits to your employees, such as health insurance or a retirement plan, you may be required to have a surety bond in place. This is because these benefits are considered to be contractual obligations, and this bond is designed to protect the employees if you are unable to fulfill those obligations.
6. You Work With A Subcontractor
If you work with a subcontractor, they may be required to have a surety bond in place before they begin the project. This bond is designed to protect you in the event that the subcontractor fails to perform as specified in the contract.
How Do You Obtain A Surety Bond?
To obtain a surety bond, you first need to find a surety company that is licensed to do business in your state. You can find a list of licensed surety companies on the website of the National Association of Surety Bond Producers.
Once you’ve found a few potential surety companies, you need to get quotes from each. The premium you pay for your bond will depend on factors such as the bond type, the amount, and your personal credit history.
Once you’ve chosen a surety company, you’ll need to fill out an application and provide any required documentation. The surety company will review your application and decide whether to approve you for a bond.
Don’t Risk Your Business — Get A Surety Bond
Surety bonds are an important part of the business world because they provide a level of security that is not always present in other types of contracts. By requiring a surety bond, businesses and consumers can be sure that they will be protected if the other party fails to meet its obligations.
If you need surety bond insurance, Stampede Insurance has you covered. Message us to request a quotation today!