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Business owners know there’s nothing better than being their own boss, but running a business comes along with countless legal concerns to keep track of. Regulations, deadlines, forms and fees compete for your constant attention. The need for a surety bond is one such time consuming consideration that many entrepreneurs know little about until they realize they need one. Oftentimes government agencies require entrepreneurs to file license and permit bonds before they’re able to get business licenses.
Understanding surety bonds unquestionably makes the bonding process easier to navigate, but information that benefits business owners is hard to come by. As an entrepreneur who’s pressed for time, you’re probably looking for a quick and easy-to-understand explanation of what surety bonds are and how they work. This article will help you along your way by answering three most common questions entrepreneurs have about surety bonds.
What are surety bonds, anyway?
A basic surety bond definition explains that they’re legally binding contracts that assign financial responsibility to business owners and other professionals. No matter what type of bond you need, it will bind you to two other entities that will hold you accountable for your professional decisions. Let me break it down even further.
- As the principal, you purchase the bond as a legal guarantee of your ability to fulfill certain expectations.
- As the obligee, a government agency requires a bond as a way to regulate industries and protect consumers against financial loss.
- As the surety, an underwriter executes the bond and provides a financial guarantee of your ability to meet the bond’s terms.
Buy purchasing surety bond insurance, you basically promise that you or your business will perform tasks according to laws or other industry regulations. The exact laws you’ll be expected to follow under the bond depend on the legal language that’s used on the bond form. As such, it’s very important that you understand your obligation under the bond before you purchase it.
How will a surety bond benefit my business?
A surety bond can benefit your business in a number of ways, but the specific benefits you’ll receive depends on your line of work and the type of bond you get. The most important benefit is the reassurance it gives your customers. No matter what kind of bond you get, you can always use it to market your enterprise as a financially sound business.
For example, business service bonds provide protection from dishonest acts your employees might commit against you or your clients. If your business provides services in clients’ homes, the bond could provide financial reimbursement if an employee be convicted of theft. Knowing that you have this kind of protection in place encourages clients to work with you because they know you have their financial security in mind.
How do I get a surety bond?
To get the bond you need, search online for a nationwide surety bond company because their specialists can issue bonds no matter what your profession is or where you work. Depending on the surety provider you choose, you might fill out an application online, over the phone or via fax.
Before issuing you a bond, your surety provider will conduct a review of your financial credentials that’s proportional to the bond’s risk. As far as surety bonds go, license and permit bonds are usually pretty quick and easy to get. Most license and permit bonds require limited financial credential reviews as a part of the screening process.
Entrepreneurs who are starting a business for the first time can get a bond quickly and easily as long as they meet minimum requirements. And rest assured, surety providers even offer special programs for applicants who might have subpar financial credentials. Regardless of your personal financial situations, having the answers to these three questions will help any entrepreneur undergo the surety bond application process more quickly, easily and confidently.
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