Frequently asked questions about license and permit bonds

Some businesses are required to buy a bond in order to get licensed. Typically, that depends on the laws in your state and your profession. For example, general contractors, electricians, and notaries public are usually required to carry a bond.

You may also need a permit to legally perform certain types of work, such as pesticide application, digging up a sidewalk, or altering a landscape. This is most common in construction, landscaping, and similar industries.

Having the right license and permit bonds ensures you're in compliance with the law, safe from any penalties, and it builds trust with clients and employers. If your business breaks a contract or doesn't comply with regulations, then the bond provides reimbursement for customers, clients, and other affected parties.

Depending on your profession and industry, you may need a license, a bond, or insurance.

Being licensed means your company carries a license to do a certain type of work legally. State laws may require you to buy a bond or insurance in order to get licensed.

For example, general contractors in California must carry a surety bond and general liability insurance in order to get licensed.

Being bonded means your business has purchased a bond, such as a surety bond or other business bond. If you break a contract with someone you work with, your insurance provider will reimburse them for any financial losses. Unlike insurance, you must then pay this amount back to the insurer.

For example, if a plumber's work isn't up to code, the homeowner who hired them might need to pay someone else to fix their work. A bond would reimburse the client for the amount of money it takes to amend the problem, and the plumber would pay that amount back to their insurer.

Being insured simply means carrying business insurance. When you're insured, the provider will pay for legal costs, property damage, or medical bills, depending on the type of coverage. In exchange for a small monthly or annual premium, you enjoy financial protection against risks like fires, customer injuries, and auto accidents.

Even when bonds and insurance aren't required, they're a good way to establish trust with clients and attract new customers. Anyone you work with knows you'll be covered in the event of an accident, or if your company can't fulfill a contract.

Clients may choose a bonded and insured company over one that doesn't have coverage, which can give you an edge over competitors.

License bonds, permit bonds, and other types of surety bonds guarantee that your business will fulfill the terms of a contract. They are an agreement between three parties:

• The principal: Your business, or the entity that is covered and has an obligation to fulfill.
• The surety: The company that issues the bond.
• The obligee: Your client, or the entity that requested the bond (such as a licensing board or governing entity).

If your business fails to comply with regulations or the terms of a contract, then the surety company will reimburse your client for any losses. Then your business must pay that amount back to the surety.

Independent contractors need the same license bonds and permit bonds as any other small business, if they want to do certain types of work.

For example, whether you're a sole proprietor or an LLC, you still need a bond in order to do plumbing work, electrical work, or any work that could disturb underground utilities. Being an independent contractor does not let you off the hook for licenses and permits, as well as any related bonds.

License bonds and permit bonds are different types of surety bonds, which guarantee reimbursement to clients if your business fails to deliver on a contract.

On average, Insureon customers pay $8 per month for a surety bond. The cost of a surety bond primarily depends on the bond amount. The most common bond amount is $10,000.

The laws in your state determine when you need a license, as well as how to get one. Typically, the process is through a state licensing board.

State licensing requirements may include:

• An age requirement, such as 18 or older
• Proof of education or experience in your field
• An exam
• A fee
• A bond
• Business insurance

Fortunately, it's easy to get bonded and insured. With Insureon, you can fill out an easy online application to get quotes for business insurance. A licensed insurance agent can help you add on options such as a license bond, permit bond, or other type of coverage.

Fidelity bonds, sometimes called employee dishonesty bonds, provide reimbursement when an employee steals from a client. They're often required for businesses that provide financial services, such as accountants and tax preparers.

Cleaning businesses are also often required to carry fidelity bonds. In this industry, they are called janitorial bonds.

Small businesses often buy fidelity bonds to protect against employee theft and breakage of client property in the care, custody, or control of your business.

Bonds are a major part of doing business in the industries of construction and building design. You may run into requirements for the following types of bonds for contractors:

• Bid bonds allow your business to bid on a project.
• Performance bonds, sometimes called contract bonds, guarantee completion of contracted work.
• Payment bonds guarantee payment for all parties involved in a project.