How to Get a Surety Bond
Surety bonds are an essential part of the licensing process for a large number of professions. From construction to finance and retail to legal, governing bodies in a range of industries require companies and individuals to get bonded before they can start work. Understanding what a surety bond is, should be the first step in getting one.
If you need to purchase a surety bond in order to secure your business license or bid on a construction project, getting the process started as quickly as possible will help to ensure you’re able to start working without any delay. Keep reading to find out how to get the right surety bond for your needs and secure the best possible surety bond cost for your coverage.
A surety bond is issued by a surety company. The bond company is the entity underwriting the bond. It’s the bonding company that will pay out if a claim is made against the principal (the person or business that the surety has bonded).
A surety bond acts a bit like an insurance policy. However, the main difference between surety and insurance is that, while an insurance company will pay out to the policy holder, a surety provides financial protection to the public.
If the principal breaks the terms of their contract, a claim can be made against the bond to cover any financial loss caused by fraudulent or negligent business practices. Essentially, a surety bond guarantees the public won’t be left out of pocket if the bonded party doesn’t act appropriately.
Surety bonds are a key licensing requirement in a wide range of industries. In many professions, an organization (often a government agency or governing body) will only issue a professional license or work license if the principal has purchased the appropriate bond. The organization requiring the bond is known as the obligee.
The reason surety bonds are so important is that they provide a financial guarantee that a person or business will abide by the rules and regulations set out by their industry. If a bonded individual or business doesn’t meet the required standards, a claim can be made against the bond.
Main Types of Surety Bond
The main types of surety bond are:
- Bid bonds
- Performance bonds
- Payment bonds
- Commercial bonds
- Court bonds
Bid bonds are used in the construction industry. Often, contractors are required to get bonded to bid on construction projects. Bid bonds require contractors to enter into a contract with the client if their bid is chosen. If the contractor pulls out of the arrangement, the difference in price between their bid and the next lowest bid will be compensated to the project owner.
Contractors working on a construction project may also be asked to purchase a maintenance bond. This protects the owner of the completed project against faults or defects with the workmanship.
Performance bonds, also known as contract bonds, are put in place to ensure the bonded party performs a job to the required standard. If the principal doesn’t meet their bond requirements, the project owner will be financially compensated.
Payment bonds ensure that a contractor will pay their subcontractors and other tradespeople for work carried out.
Commercial bonds are designed to protect consumers against fraud, misrepresentation and negligent business practices. They are generally required by federal or provincial courts, government bodies, financial institutions and private corporations.
Court bonds are sometimes required in cases where a person is going to act as a fiduciary for someone else.
A lot of financial professions have surety bond requirements. For example, if you’re a lender, a mortgage broker, an insurance broker or a financial advisor, you’ll probably need to get bonded before you can start working. In some states, a person working as a notary is required to purchase and maintain a surety bond.
Surety bonds are also common in the automotive industry. Car dealers in most states are required to purchase motor vehicle dealer bonds before they can begin trading. This applies to dealerships selling both new and used vehicles.
Some of the most common types of surety bonds are:
- License and Permit bonds
- Freight broker bonds
- Auto dealer bonds
- Mortgage broker bonds
- Contractor license bonds
- Construction bonds
- Fidelity bonds
- Auctioneer bonds
- Probate bonds
If you need to get bonded to secure your professional license, bid on a construction project or act as a fiduciary on behalf of a third party, our guide to the bonding process will help you to get the coverage you need.
Step 1 – Check Which Type of Bond You Need
The first thing you’ll need to do is check the exact bond requirements for your profession or role. There are a huge number of surety bonds available, and you’ll need to ensure you get the correct bond for your needs.
Contact the obligee (the party that has requested you obtain a bond) for details.
Step 2 – Get a Bond Quote
The next step is to contact a surety company and get a bond quote. Look for a company that will provide a no obligation free quote so you can compare prices and see exactly how much your bond will cost.
Because of the way surety bonds work, the bonded party is required to pay a fraction of the total bond amount to purchase and maintain their bond. This is known as the surety bond cost or bond premium.
The level of your premium will largely depend on your credit score. The better your credit history is, the lower your premium will be. This is because sureties consider people with poor credit to be a higher risk.
If you have bad credit, shop around for a surety company that offers a bad credit surety bond program specifically designed for applicants with a poor credit score.
Step 3 – Apply for Your Bond
When you find a quote you’re happy with, it’s time to start the application process. Your chosen surety company will ask for financial information as well as details about your history as a professional or a small business owner.
Surety bonds are often required by business owners, professionals and individuals. If you need to get bonded, fill in our application form for a free quote or get in touch with a member of our expert team today.