Surety bonds

Larger clients and government agencies often require proof of a surety bond before they'll work with your business. State laws also mandate bonds for certain professions.

Even the most reliable business could suddenly lose a valuable employee, or run out of needed materials due to a supply chain disruption. Surety bonds provide a guarantee that your client won't lose money if your business unexpectedly can't fulfill its obligations. It's a crucial part of risk management when small businesses take on big projects.

Even when it’s not required, a commercial surety bond is a way to prove your small business is reliable. It may give you an edge over non-bonded competitors, which could mean the difference between winning or losing a project.

A surety bond guarantees that your client will receive financial reimbursement in the event your business fails to complete a project or fulfill the terms of a contract. Different types of surety bonds help you qualify for contracts, bid on projects, or obtain necessary licenses and permits.

Specifically, surety bonds often provide coverage for:

Surety bonds protect many different types of businesses, and there are different types of bonds for a wide range of risks. You may need a bond to bid on a project, get a license, or obtain a work permit, depending on your industry and the type of work you do.

Here are a few examples of professions that often rely on commercial bonds or are required to carry them.

Business owners who provide professional services often need a bond in order to sign a contract with a client or comply with state requirements for their profession. For example, state laws usually require notaries public to carry notary bonds that protect the public from potential errors.

Some states require anyone who prepares income tax returns for someone else to obtain a tax preparer bond. Tax bonds are another type of surety bond that some state and local governments require for commercial taxpayers that serve as a financial guarantee that they will act in the best interests of their clients.

Wholesalers may also need surety bonds, usually to reassure clients that they'll deliver products as promised in a contract.

Insurance professionals often need to get bonded before they can obtain a license and legally go into business. The requirements vary by state. For example, insurance adjusters in New York must carry a $1,000 surety bond in order to get their license.

Surety bonds are often required by state law for both new and used auto dealers. An auto dealer bond protects the public from fraud or misrepresentation by the dealer.

Clients often require cleaning companies to carry bonds, which in this case are called janitorial bonds. If one of your employees steals jewelry or cash from a client, the insurance company will reimburse the client up to the bond amount.

Healthcare facilities that manage public funds or patient assets are often required to have a surety bond. For example, a nursing home that handles their patients' Social Security payments or personal funds would likely need a surety bond to comply with state laws.

While a surety bond protects your clients from financial loss, it does not protect your own business against damages or losses. In fact, your business is responsible for paying the surety provider back for any amount it pays to a client.

That's why you also need small business insurance. For instance, a surety bond does not include coverage for:

A surety bond offers a financial guarantee that an insurance company will reimburse your client if your business doesn’t complete a project, breaks the terms of a contract, or fails to adhere to regulations.

Surety bonds are a three-party agreement between:

• Your business (the principal)
• Your client (the obligee)
• The company that supplied the bond (the surety)

Surety bonds do not work like standard small business insurance policies, which pay out claims to the policyholder. Instead, the surety company reimburses your client directly.

Unlike an insurance policy, you must pay this amount back to the insurer or surety bond company. In a way, a surety bond is more like a line of credit than insurance, with your insurance company acting as a lender.

The only exception is a fidelity bond, which does not require the business owner to repay the bonding company. This specific type of surety bond resembles a standard commercial insurance policy.

When you first start working with a client, they may ask you to purchase a surety bond in a specific amount before they'll allow workers on their premises. State laws often have surety bond requirements before you can get a license or work legally in a certain profession.

For example, you may need a surety bond to sign a construction contract, or work for your local government on a project.

In addition to standard surety bonds, there are miscellaneous bonds for specific risks. For example, a travel agency might need an airlines reporting corporation (ARC) bond to issue plane tickets, or a vendor might need a concessionaire bond to operate on someone else's property.

Surety bonds protect your clients from financial loss, which means they may be willing to work with your company even if your business is relatively new. They can rest assured you'll meet contractual obligations, or reimburse them fully if the bond requirements are not met.

You'll want to research the laws in your state to make sure you're carrying all the necessary bonds and insurance for your profession. You can also consult with an insurance agent who can help you find the right coverage.

It's easy to get a surety bond with Insureon, the number one online marketplace for small business insurance.

First, fill out our free online application to get quotes for general liability insurance, workers' compensation insurance, and other policies. An insurance agent can help you add other coverages, such as a surety bond, and answer any questions.

We'll help make sure you get the right coverage from providers who are ranked highly by A.M. Best, without paying too much for insurance and bonds.

A surety bond is a financial guarantee that a contract will be completed. A fiduciary bond is a type of surety bond used in courts, financial institutions, and other places where a trusted figure is in a position to cause financial harm if they act irresponsibly.

Municipal and federal government entities, such as probate courts, often require anyone performing a fiduciary role to have a fiduciary bond. A fiduciary role refers to someone managing the property and assets of someone else, such as a financial advisor, guardian, or someone overseeing the execution of a will.

There are numerous types of fiduciary bonds, including probate bonds, estate bonds, and public official bonds, which guarantee a public official will faithfully carry out their duties.

Court bonds (also called judicial bonds) aren't always fiduciary bonds. For example, appeal bonds and bail bonds don't involve anyone with a fiduciary role.

Yes, an indemnity bond is a type of surety bond that ensures that a party receiving funds from another will be paid according to a contractual agreement. Indemnity bonds are commonly used in commercial contracts, leases, and other licensing or loan agreements.

A company is bonded when it has a surety bond. It's insured when it has other insurance policies, such as general liability insurance or workers' compensation insurance. Finally, it's licensed when it has obtained the licenses necessary to operate legally.