There are many types of small businesses that will or might need a surety bond of some kind, so whether you require one now or not it is wise to educate yourself on the types of bonds available and how to obtain them.
Simply put, a surety bond is an agreement made between three parties. In the case of your business that would be whoever you are providing services to that requires a bond, your business as the purchaser of the bond, and a surety bond company that sells the bond. Should your customer of client be harmed in some way the company that provided your bond pays agreed damages up to the total value of the bond. Many localities require contractors to be bonded in order to be licensed. You should not confuse a surety bond with insurance because the company you purchase a bond from will seek reimbursement from your business after settling the claim.
Surety Bonds a Small Business Often Needs
Contract Surety Bond – These are often needed in the construction industry and by variety of other types of general contractors. The Bond serves as guarantee the contractor adheres to the stipulations of contracts they enter into with a customer or client. These bonds are often called bid bonds, performance bonds, payment bonds or maintenance bonds depending on what type service the contractor is providing.
Commercial Surety Bond – Commercial blonds include public official and license and permit bonds. These are generally needed when a business’ service does not fit in a standard contract bond.
Court Bond – These are surety bonds required by a court statute. One of the main reasons you may need a court bond is for trustees, administrators, or other legal representatives of your business.
Can My Small Business Afford This?
The better question would be can you afford to be without it? In many cases, winning a bid or getting the client requires being bonded. And even when not required, being bonded adds a stamp of authenticity to your small business many customers look for. Bonds generally cost just a few hundred dollars but penalties for not having required bonds can run into the thousands. Failure to have necessary bonding places your business at risk when that can be avoided quickly and economically. More often than not a surety bond can be the difference in staying in business or being forced out. The sanity one provides is well worth the small cost.