Surety Bond For a Business License

  • June 4, 2024
  • 5 min read

Requirements for a Business License Surety Bond
Most states have requirements for certain types of business licenses that the licensee, when they apply for their license or when they renew it, has to get a surety bond. Some states also require insurance, which is separate from the bond. We’ll talk about that as well. A surety bond is a financial instrument which covers any type of losses or damage or financial responsibility if the licensee fails to properly execute the requirements of their license.

General Contractors and Surety Bonds
So, in this case, we’re going to talk about general contractors. Most states require that a general contractor, a builder, obtain a surety bond to back up their license. So, what happens is if you’re a general contractor and you fail to properly execute work that you contracted with a client or you rip off somebody for their money, the surety bond benefits the state agency which gives the license. So, if there’s a consumer or a business that complains against you that lost money or you defrauded them, the surety bond can pay them back so the state doesn’t have to pay them because the state is giving you a license, which is giving you the privilege of doing business under the state’s permission. If they do that and then a consumer is harmed, they want to make sure the consumer has a way to become whole again.

Other Businesses Requiring Bonds
Other types of businesses that require bonds are things like car dealerships, accountants, attorneys, anybody who is dealing with the public and is put in a position of trust or taking money. Many states are looking to increase their bonds. Here’s one in the state of Oregon where they’re increasing the bond from $220,000 to $25,000,000. In addition, the general contractor has to have insurance for $500,000. So, you have to have a bond and you have to have insurance. This protects potential consumers.

Obtaining a Surety Bond
So, if you are a business or an enterprise that requires a bond and insurance, how do you go about doing it? Well, first start out with your bonding agency to start the underwriting process. They’re going to check you out to make sure you’re financially stable and you don’t have any prior bond claims. If you do, you probably can still get a bond, but it might be a higher premium. You also want to make sure that you provide very good identification of all the parties involved and then you purchase the surety bond. Make sure that you, as the obligee, are listed properly, with the right name of your corporation or your enterprise, and that the protected party is listed exactly how that licensing division wants their name to be issued on that bond. Most surety bonds are issued for a couple of years, which means you may have to renew it in a couple of years. They’re relatively inexpensive. A bond like this for $225,000 probably costs you a couple hundred bucks in most states depending upon the coverage. But if you don’t have it, you won’t get your license.

Voluntary Surety Bonds
Now, what if you are in a business that doesn’t need a surety bond? Should you get one? Well, here’s the thing: if you are doing marketing and you are doing advertising to consumers and you’re trying to sell people on your business, you probably talk about your Google reviews, your Yelp reviews, all kinds of different things about your company that are good. Why not spend a couple hundred bucks to get a surety bond so you can tell your customers that you’re bonded? That proves that you went through an underwriting process and were checked out. It proves you have protection for them should something happen by a third party, and it proves that you’re willing to go the extra mile to get more credentials. So, if you are in a business that doesn’t require a bond, it might be worth spending a couple hundred bucks. I’m sure you spend more than $200 on other marketing things that may not get you as much benefit as being able to tell your customers you’re licensed, bonded, and insured.

Increasing Bond Amounts
In addition, if you are in a state where, let’s say, $25,000 is the bond, why not get one that’s $50,000 or $40,000? You can tell your customers you’re bonded for double the requirement. When it comes time to bidding on contracts, when your client looks and sees that you have double the amount of bonding coverage or double the amount of insurance coverage, that might be what puts them over the edge. Even if your bid comes in a little higher or it’s about the same, that might be the thing that makes a difference. And it’s a couple hundred-dollar expense. So, don’t always look for the minimum. You’ll have more coverage, and everything in this world is about sales. You want to sell to your clients. Giving them more reasons to deal with you and to engage with you is always a good thing. A surety bond, whether it’s required or a higher amount, is one way to give your customers peace of mind that they might want to do business with you.

Leave a Reply

Your email address will not be published. Required fields are marked *