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If you're among the many small business owners trying to get a new company off the ground, you might be discovering quite a few things you didn't anticipate. One of them might be the need for a surety bond. Being bonded can serve many different purposes. In some cases, it's to prevent your business from suffering unnecessary financial loss. Other times, you need to be bonded simply to meet contractual obligations. In any case, choosing and utilizing a surety company is how you can get bonded.
How to Apply for a Surety Bond?
Surety bonds are available through licensed industry agents. Look for an agency that deals exclusively in bonds or has a dedicated bond department so you don't accidentally wind up with insurance instead. You'll have to put in an application with certain personal information. Your credit score will be checked as part of this process, but you can possibly get involved in a high-risk program if you have bad credit. Larger agencies will have more access to the high-risk pools that let them offer surety bonds to people with less-than-stellar credit. The kind of bonding you need and the information you provide will likely determine the acceptance or denial of your application, as well as the cost.
How Much Does It Cost to Be Bonded?
As the years have gone by, insurance products have trended towards a status of commoditization. Estimating your insurance costs is easier than ever since so many products in that category are similar and share similar pricing levels. Unfortunately, estimating bonding costs isn't as simple. Surety bond costs aren't nearly as cookie-cutter or uniform in nature. Underwriters assess your level of risk for triggering claims, and they use that information to determine your surety bond rate. Remember that surety bonds aren't actually insurance as much as a kind of credit. Get quotes from licensed agencies if you want to find the best balance of price and coverage.
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Getting Licensed & Bonded
One requirement common for surety bonds is having a license bond. These would be mandated by third parties. Even if your particular profession doesn't require licensing, you should still have insurance. If your profession does require licensing, then a surety bond might have to be a part of your licensing application. These regulations often vary on a state level. Specific examples of mandatory license bonds include freight brokers, contractors, and auto dealers.
What Credit Score Do You Need to Get Bonded?
A credit check is part of the process of getting a surety bond. The surety company wants some idea of your likelihood of paying them back should they need to pay a bond claim out on their part. Your personal credit score indicates your history of repaying other companies. High credit scores are obviously better as you appear more trustworthy. Alternatively, low credit scores indicate that you are more of a risk. Surety bond companies usually look for credit scores in excess of 670 and that you don't have judgments, liens, and collections filed against you. Having a credit score under 670 can still be acceptable, but you'll wind up paying more money for the bond.
Work With an Agency Specialized in Bonds
Your best move is to work with an agency that specializes in bonds. Many firms offering bonds might also work in insurance and do bonds on the side, so be sure you pick someone who either deals in bonds exclusively or has a dedicated department. While you will likely need some combination of bonding and insurance, you need to be sure you get your specific needs in both areas met. The right agency can help you determine the kinds of bonds you need as well as the size and scope of them. Then, they can help you gather what information you need for your application. Keep in mind that additional information might be asked for during the approval process. Bond agents have to be thorough, and this doesn't actually indicate problems with your company's application. In time, you'll get the coverage you need.
What Does Bonded Mean?
When talking about being bonded as a small business, many different terms can get thrown around in the conversation. You might hear things about who the obligee is or what a fidelity bond is. Using a bonding company is a great step to give your customers and stakeholders peace of mind, but you also need to know what bonded means. Basically, a bond is a form of insurance acting as a credit to you for certain high-risk situations. For instance, if customers don't pay you for contracted work, the bond will pay out enough for you to pay your subcontractors. Additionally, if you, for some reason, fail to finish the job or do not perform the job correctly, the customer can make a claim against the bond. In either case, you will have to pay the bond back.
Why Being Bonded Is Important
Business owners should have a good understanding of why being bonded is important. In many cases, bond requirements dictate the need for them. However, business insurance might require you to have certain bonds in place. Otherwise, an insurance agent might not even offer you a policy. The right combination of bond amount and bond program means that your company is a legitimate one and won't leave another party responsible if you fail to meet certain obligations. Many big clients will actually mandate that their business partners have both the right bonds and liability insurance.
What Does Being Insured Mean?
Insurance policies are closely related to being bonded, but they're not entirely the same. However, bonds and insurance meet many business needs. Depending on the specific underwriting, insurance policies will pay out for a submitted claim. Just as there are different types of surety bonds and contract bonds, there is more than one type of insurance. Some insurance policies might cover employee theft, while other kinds might handle workers' compensation or property damage. In all cases, insurance means you assume a pool of collective risk in exchange for your premiums.
Why Being Insured Is Important
As you sort out your needs between performance bonds and liability insurance, you might wonder why you need to be insured in addition to handling the bond cost of business bonds. Depending on your type of business, a bond agency might not be able to cover all your needs. While bonds are often legal necessities and should always give customers peace of mind, it's insurance that helps your company prevent itself from suffering financial losses if claims are filed. Bonds might be structured to pay monies out to other entities, be it the government, customers, or even some investors. However, insurance pays your business directly. Having both is necessary for everyone's interests to be covered.
How Is Being Bonded Different From Being Insured?
When you really get to know how bonds work, you then understand what you get in exchange for the surety bond cost involved. While the general idea is protection, bonds might protect those dealing with a new business but not the business itself. A government agency might require a license bond for subcontractors to do any work, and those bonds might protect the public from harm. However, it is a general liability insurance policy that actually protects your company. Bonds make payments to the government or public if your company winds up defaulting on specific contractual obligations. Alternatively, insurance pays your business for claims in areas such as injury, property damage, or theft.
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