• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Submissions
  • About Us
  • Contact Us
  • Aug 12, 2022
  • Startup
    • Creating a Plan
    • Funding a Startup
    • Franchise Center
    • Getting Your Office Ready
    • Making Your Business Official
    • Marketing Your New Business
    • Personal Readiness
  • Run & Grow
    • Customer Service
    • Human Resources
    • Innovation
    • Legal
    • Operations
    • Risk Management
  • Leadership
    • Best Practices
    • Communication
    • Green Initiatives
    • Open Culture
    • Strategic Planning
    • People Skills
  • Sales & Marketing
    • Advertising and Lead Generation
    • Marketing Innovations
    • Marketing Plans
    • Online Marketing
    • Relationships
    • Sales Activities
  • Finance
    • Budgeting and Personal Finance
    • Payments and Collections
    • Tax and Accounting
    • Pricing Strategy
    • Working with Investors
    • Working with Lenders
  • Tech
    • eCommerce
    • Hardware
    • Software
    • Security
    • Tech Reviews
    • Telecom
  • Shop

SmallBizClub

Helping You Succeed

Home / Run and Grow / Legal / Your Startup May Need a Surety Bond
Your Startup May Need a Surety Bond

Your Startup May Need a Surety Bond

3700 Views

Apr 18, 2016 By SmallBizClub

Many new, first-time business owners don’t know about surety bonds until they find out they are required to have them—usually as part of the licensing process. Typically, a government agency in your state or county will require you to have a surety bond. So, if you’re a small business owner or entrepreneur, chances are that you will need a surety bond to start your business.

There are thousands of surety bond types required in the U.S and trying to navigate them without prior knowledge can be daunting and confusing, especially if you are in the midst of launching a brand new business where everything is new territory.

It’s important to understand what bond you need in order to comply with the law as well as what the bond actually does. That’s why we’ve created this surety bond guide to help you understand the nature of surety bonds and how to purchase them.

What is a surety bond?

A surety bond is a contract between three parties:

1) The obligee

The obligee is the entity that requires you to purchase the bond. Obligees are typically states or government agencies

2) The principal

The principal is you, the business owner purchasing the bond

3) The surety

The surety is the company that backs the bond by providing a line of credit

License and Permit bonds, one category of surety bonds, are the most common bonds required for small businesses and privately owned companies. A License and Permit bond ensures that your business adheres to all laws and regulations for the state or area you are conducting business in. These bonds are in place to reduce and curb financial harm to customers or those conducting business with the principal. The bond provides anyone negatively inflicted, as a result of wrongdoing by the business, a way to recover losses and hold the business liable through the surety company.

Why do I need a surety bond?

There are several reasons why you need a surety bond.

Most importantly, if you don’t have a surety bond, you could be breaking the law. Surety bond requirements are set at the state level in most cases and mandated by legislation overseeing the industries. License and permit bonds are almost always required as part of the business licensing process.

It is illegal to operate without a proper business license with the bond being a part of that licensure. Proceeding to conduct business without the proper bond in place could result in fines or license revocation restricting you from operating at all. Make sure you check exactly which surety bond is required by your state or governing agency (obligee) so that you save yourself time and legal trouble.

Being bonded can also serve as a great marketing tool. You are likely to draw more business if your customers see that your company is bonded and insured. It shows your prospective clients that you are reliable and trustworthy, and this can put you way ahead of your competition giving your business one more reason to win customers on the fence.

How to Find the Lowest Rate for Your Bond

To get a surety bond, contact a reputable surety provider to request a quote.

Surety providers are companies that issue surety bonds and you can call them to give you a quote on how much your bond will cost. It’s recommended that you request pricing from multiple surety providers to ensure you’re getting the best possible rate for your bond.

To determine the cost of your bond, surety providers will often look at your credit and consider the risk associated with the type of bond you are seeking. Not all bond types, however, require a review of your credit and financial background. The greater the history of risk and incidents involved in the industry or type of business you’re doing, the more likely the bond will take these factors into consideration (also known as “subject to underwriting”)

The money you pay for a surety bond is called the premium, and it is always a percentage of the total bond amount. Paying the premium removes the weight from your shoulders of having to set aside the full amount of the bond.

Invest in Your Business

While the search for your surety bond may seem complex, it’s important to understand which bonds are required of you, what they accomplish and how you can purchase them. By doing this you are ensuring that your business follows all state and federal laws, is properly licensed and ultimately attracts customers.

Sarah JacksonAuthor: Sarah Jackson is a marketing assistant at SuretyBonds.com. SuretyBonds.com works with small businesses and entrepreneurs to help them get the surety bonds they need quickly and easily. Follow us on Facebook, Twitter, Google +, Youtube and LinkedIn.

Filed Under: Legal, Making Your Business Official Tagged With: Getting Started, Legal Issues, Startups

SmallBizClub

SmallBizClub

SmallBizClub.com is dedicated to providing small businesses and entrepreneurs the information and resources they need to start, run, and grow their businesses. The publication was founded by successful entrepreneur and NFL Hall of Fame QB Fran Tarkenton. We bring you the most insightful thinking from industry leaders, veteran business owners, and fellow entrepreneurs. That means guides to the complex worlds of financing and technology. It means business owners sharing their personal stories—both successes and failures— through articles, video, and most important, answers to your small business questions. Follow us on Facebook, Twitter, and LinkedIn

Related Posts

  • Startup Investment: What’s The Secret to Investing in the Startup World?
  • after-llc-formation--what-s-the-next-step-7 Things Every Operating Agreement Must Include
  • Why Should You Hire a Business Lawyer?

Primary Sidebar

Random

5 Marketing Tips for Professional Gamers

Jan 24, 2022 By Pablo Medea

Can You Power Your Business with Renewable Energy?

Mar 27, 2018 By Andrew Deen

The People Behind the Biggest Apps in the World

Nov 5, 2014 By SmallBizClub

One Simple Copywriting Tip for Startups: Highlight Benefits, Not Features

Dec 3, 2013 By Killer Startups

Delivering Insight: What Happens Next?

Jan 26, 2017 By Dave Brock

Footer

About Us

Small Biz Club is the premier destination for small business owners and entrepreneurs. To succeed in business, you have to constantly learn about new things, evaluate what you’re doing, and look for ways to improve—that’s what we’re here to help you do.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Copyright © 2022 by Tarkenton Institute, Inc. All Rights Reserved | Terms | Privacy