Did you know only about 25% of small businesses reach 15 years or more? To keep a business running for many years, you need several licenses and certifications from various companies. Most of these businesses need a surety bond.
This bond is an agreement between a surety (the insurer) and a business. In this agreement, the company agrees to abide by the contract terms. The surety agrees to pay any damages incurred should the business break the contract. But when do you need a surety bond?
Keep reading to ensure you’re responsibly operating your business legally and financially.
Benefits of Obtaining a Surety Bond for Business
The need for a business surety bond depends on the specific industry and type of business. They provide security and credibility to companies. They show potential customers that the business is credible and responsible.
Furthermore, these can help protect the business from any legal action. Finally, a surety bond can serve as a source of financial security. If an incident were to occur, the surety bond would cover most of the associated costs.
When to Get a Surety Bond
There are various instances when obtaining a surety bond is necessary for operating a business. You may need this to get a professional license, bid on or award a contract, or get a permit to operate. Research the available options and minor bond amounts needed in the specific industry you conduct business in.
Risks Associated with Surety Bonds
Surety bonds protect companies from unavoidable risks associated with their operations. Businesses often need this when opening a business in certain states.
There are many risks associated with surety bonds. It includes potential cost overruns, underperformance, or other contract-related risks. Companies must weigh the potential risks and benefits before proceeding with the bond.
While there are risks, they also provide financial protection from unexpected contract issues. Companies should consult an experienced broker to make an informed decision.
What Businesses Require These Bonds?
Certain types of businesses need surety bonds to operate. For example, certain contractors, such as roofers, carpenters, electricians, plumbers, and HVAC technicians, can avail of this. Depending on their location, these industries need to buy a surety bond.
Other businesses, such as nonprofits, may need to buy a bond to be granted nonprofit status by their state government. Additionally, any licensed company may need to buy a surety bond.
How to Obtain Surety Bonding
To purchase a surety bond, one must contact an insurance provider or surety broker who is licensed to sell surety bonds. After both parties have written and agreed upon a contract, the surety company will give the bond. It may require collateral in the form of cash or property.
The obligor will then pay the surety company a premium. The surety company will then issue the bond, which has all the necessary information about the conditions and terms of the agreement.
Get the Best Security Bond for Your Business Today
Knowing when to get a surety bond is essential to protect business owners and principals. Businesses can ensure their financial safety by knowing when these bonds are necessary. Contact an experienced surety bond provider to help protect your business today.
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