Small businesses in many instances are required to have surety bonds. The types of companies that are required to purchase a surety bond can vary from state to state and even from business to business. There are also certain industries in which bonds are generally required. Businesses that work in construction, those that are contractor based and car dealerships are three of the most common small businesses that are required to have surety bonds to operate.
Why Do Small Businesses Need Surety Bonds?
Business bonds are required because they ensure that certain obligations are met by businesses. Depending on the terms of the bond, they will generally ensure financial compensation if a business fails to complete a job for a client. While surety bonds are different from commercial insurance, they are similar in that they provide monetary compensation if certain conditions are met. The main difference is that they are designed to protect obligees rather than the Principal (who is expected to perform contracted duties). This protection is necessary and often required by law.
The Different Type of Business Surety Bonds
There are a few types of surety bonds that are of interest to Small businesses:
- Bid bonds: ensure that the bids companies put up for a project (generally in the public sector) are accurate and that the business has the capacity and ability to take on the project that they are bidding for.
- Performance bonds: once a bid is accepted for a contract, a performance bond is required to ensure that the job will be completed according to the terms of the contract.
- Payment bonds: if subcontractors or suppliers are used during the contract, this type of bond ensure that they will be paid for the products or services they provide.
- License bonds: these bonds ensure that companies do not commit fraud or unethical practices while selling products or providing services. Some of the types of businesses that require license bonds can include:
- Auto dealers
- Private detectives
The Easy Way to Obtain Small Business Bonds
Despite being a requirement, the surety bond process can be difficult to navigate. That’s why it’s important to work with an agency that can simplify the process. At the Patrick J. Thomas Agency, we have worked with small businesses to help them become bonded and insured. From surety bonds to commercial insurance, you can count on us to meet your specific needs. Contact an agent today to get started.
Disclaimer: this is for informational purposes only and is not intended to be legal advice. If you need legal counsel, please contact an attorney directly.