Many new business owners often ask why they need to obtain a surety bond in Minnesota. This isn’t unique to Minnesota; most states require businesses in certain industries to obtain surety bonds on top of the commercial insurance they already carry. That’s because surety bonds and commercial insurance protect and cover two very different things:
- Surety bonds protect a business’s customers
- Commercial insurance protects the business and business owners, and employees
What Are Surety Bonds and Why Do Minnesota Businesses Need Them?
Surety bonds, as they are used for businesses, are a type of insurance that protect customers from fraudulent behavior or misconduct by the business. Although it is the business that must obtain and pay for the surety bond, the protection extends to the customers they serve.
As an example, a surety bond obtained by a construction company who has been hired to complete a project in Minnesota will protect the customer, not the construction company. If the construction company does not uphold their end of the contract (to complete the job) or commits some type of misconduct, the bond company will provide financial recompense to the customer who has been “damaged.”
Surety bonds also benefit the businesses who obtain them because they make your business more attractive to customers. When people know your business is bonded, they may feel more safe signing a contract with you because they know they will have a means of recompense should something go wrong. It can be a selling point that is worth advertising when you market your business.
Some of the businesses (there are many) that tend to need surety bonds include:
- Plumbers and electricians
If you are not sure if your business needs a surety bond, be sure to check with an attorney or the state in which your business operates.
How Commercial Insurance is Different
Commercial insurance, like property and liability insurance, worker’s compensation and other types of business insurance are different in that they protect the business and those who work there. Property and liability insurance protect your physical business location from damage, liability protects your business in case someone is injured, and worker’s compensation protects your business in case an employee is injured while on the job.
There are many different types of commercial insurance in Minnesota, and the same company who helps you get a surety bond for your business can also help you setup insurance coverage, as well.