If you are a business owner, you not only need to obtain business insurance to be sure your company is protected in the event of an accident or legal dispute. Depending on your business, you may need to get bonded to protect consumers and the public. But what does that mean, and how can you go about getting bonded? Here’s a guide to everything you need to know about how to get bonded as a small business owner or professional.
What is a Surety Bond?
As a condition of obtaining your business license, you may be required to secure a surety bond. This is what protects the public if you default on your obligations as a service provider or fail to abide by the terms of a contract with a client. In the world of construction, these are often referred to as performance bonds but another large category for all other businesses and service providers are known as permit bonds and license bonds. These types of bonds protect both the consumer and the government while making sure that important parts of daily business operations run smoothly with integrity.
A surety bond is a contract between three parties: the principal, which is your business; the obligee, who is typically a client or customer you do business with; and the surety bond company (often an insurance company) that issues the bond. The bond ensures that you as the principal fulfill all contractual obligations to the obligee, who has agreed to take on some of the risk of you performing your duties as a professional. The surety bond transfers this risk to the surety company that issues the bond and in return for this risk, the surety charges a fee or “premium.”
If the principal fails to meet your obligations under the bond – say, for example, if you go insolvent and can’t finish the job – then the surety will cover any expenses and unpaid interest that result from potential claims against the bond due to default. This is why many project owners, a government entity, and creditors ask for a bond as performance security before they award a project, grant a license, or extend credit to a new business, respectively.
What does Bonded mean?
When your company is bonded, it means that you have obtained surety bonds that guarantee the performance of all contractual obligations to the obligee. If at any time there is a defaulted obligation putting the provider in breach of contract, the surety will then step in to remedy the defect or cover the amount of damage incurred in accordance with and to the limit of the type of bond issued.
In order to obtain surety bonds from a surety bonding company or surety company, you will have to apply through a licensed surety agency for the bond required to become fully bonded and insured. If approved, you will have to pay the premium upon issuance and execute an indemnity agreement to become bonded. Typically, that is equivalent to 1-5% of the total coverage amount.
If your company does not comply with the agreed-upon obligations, then you are deemed to default on your contract. This can be subjected to a court order or judgment against its assets to benefit the surety company for this purpose should a claim be made against the bond and deemed valid.
How do I get Bonded?
To get bonded, you need to apply for a surety bond through a licensed surety bond agency. Before applying, ensure you review your contract requirement and state’s regulations to understand your bond requirement. This may require research within your industry association or state’s websites. When ready to get bonded, follow the below steps:
1) Research what your profession requires to become bonded and insured:
Before you apply for a surety bond, first figure out exactly what kind of bond insurance your small business needs. There are several different types of surety bonds available, each catered to industry and state or federal government agency requirements. For instance license and permit bonds are required by notaries and lottery retailers to operate. However, fidelity bonds may also be relevant as they typically protect against financial loss due to theft or fraud on the part of employees. Then there are contract bonds that protect against non-performance of the terms of a contract on the part of the principal most often in construction projects.
2) Consult your CPA, Insurance Agent or best a Surety Bond Agency:
Before you apply for any surety bonds, business owners should speak with their CPA or attorney to figure out which forms of bonding are appropriate for your business and what their bond costs (bond amount) will be. Also, local insurance agents or insurance agencies may assist you, but they often do not have specialized experience with the best bonding programs. It’s best to speak with our surety experts or visit our information center to determine how to get bonded properly.
If you are still unsure about the precise amount of your bond requirement, our bond experts will be able to assist you in determining precisely what kind of bond you’ll require and how much it will cost. They will also walk you through the bond application procedure and assist you with any remaining concerns about common surety bond requirements. Or simply search your state and industry using our search tool.
3) Prepare your Surety Bonds Documents for Submission:
Getting bonded requires personal and or business documentation such as a credit report. You must supply detailed financial records and personal information to prove that you are qualified for the surety bond and will be able to make the required payments. When you have all of the required surety bonds documents ready, you will submit them to our underwriters for bonding company approval in the next step.
4) Submit your Surety Bond Application Online:
Use our online search tool to find the surety bond application you need. Make sure to fill out all of the required information, including details about your business and the obligee. Provide all information and submit it to our surety expert underwriters. You can always get real-time help by using our chat feature to speak with an underwriter. With many online agencies, it takes days to quote the bond, get approval of your bond application and send your bond to you. If approved, we will most often have your bond in your inbox within minutes or the same business day.
5) Sign Your Surety Bonds Documents
If approved, we’ll send documents on behalf of the surety bonding company to you which include the bond, an indemnity agreement, and payment form. Return the signed agreement as quickly as possible. As soon as you sign and return the bond, you will be bonded and we’ll have the bond sent out to your obligee as well.
It is important to note that different states have different laws for which financial documents are required to obtain bonding. Some states have higher surety bond requirements than others, so it is crucial that you find out what those are before applying for a surety bond. If you do not provide all of the correct documentation, your application could be denied.
The entire process can vary depending on how much information you have to provide to the surety bonds company, but we are dedicated to quick and instant online bonds delivered to you fast.
The above are the steps on how to get bonded. That’s it! Rely on our experience in applying for surety bonds to get you bonded fast!
How to Get Bonded Summarized
To get bonded and insured should not take too much time and effort once you know the requirements. Bonds add protection for your business by protecting the public and those you do business with you from financial losses in case anything goes wrong. If you qualify for a bond, it signals to your customers you’re capable and professional to serve them. And that’s good for business, and staying in business with repeat customers.
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