Starting a new company can be a daunting task. There are many things to consider before opening for business, and it’s crucial that all business owners know what bonds are needed to operate legally and protect their business. We will review what it means to be bonded, the process of getting bonded, the benefits of bonding and what you should know before purchasing a bond.
When a company or individual is “bonded” it likely means they either have a surety bond or a fidelity bond in place. Surety bonds are required and protect the public, while fidelity bonds generally aren’t required and can protect you or your clients from employee dishonesty such as theft. This topic deserves an entire post to itself, which is why we published a separate article that goes into great detail about what it means to be bonded.
When someone wants to bond their business, they are referring to obtaining surety bonds or fidelity bonds. Although these bonds may seem interchangeable, they serve very different purposes.
Let’s begin with the process of getting a surety bond. First, you only need a surety bond if it’s required of you to legally operate your business. A surety bond guarantees you’ll follow all laws and regulations that apply to your business. If you already know you need a surety bond, the process is as easy as applying to get an instant bond approval. Once you’re approved, you need to provide payment, sign the indemnity agreement and we will ship the surety bond to you.
If you don’t know whether a surety bond is required of you, it is extremely important to find out. You must verify what type of surety bond is needed, if any, in order to ensure you are in compliance with the law. Contacting your state is usually the best place to research surety bond requirements. Operating without a surety bond when it’s required can result in the halting of all business operations. There are many different surety bonds required by local, state and federal governments, and even third party entities (all are known as obligees), and surety bond requirements vary greatly by your location and occupation. Take a look at our bond guide to help determine if you need fidelity insurance or surety bonds. If you need additional assistance, you can also contact our bond agency directly.
Now that you understand surety bonds are required to operate your business and guarantee you’ll follow rules and regulations, let’s move on to fidelity bonds. If no one is requiring a bond and you simply want to protect your business or clients from employee dishonesty such as theft, a fidelity bond would be the right choice for you. The process of getting a fidelity bond is quite simple, and similar to purchasing another type of insurance policy. First, you must apply. Then we will help determine the coverage you need. After we determine your needs, you must provide payment and we will ship the bond to you. If you want employee dishonesty protection with fidelity bonds, you can apply to get bonded now. Visit our fidelity bond center to learn more about fidelity bonds.
Besides advertising that your business is “bonded and insured” or “licensed and bonded”, the benefits of surety and fidelity bonds are very different. Surety bonds benefit and protect the public, not your business. If your business fails to fulfill the surety bond guarantee such as not following its business license terms, the obligee (whoever is requiring the bond) can file a claim to recoup any losses caused by you.
You may wonder how a surety bond is beneficial to your company. Remember, surety bonds are required to legally operate. Your only alternatives are to either stop all operations, or obtain an irrevocable letter of credit (ILOC). An ILOC will cost a percentage of the face amount required and 100% collateral will be needed, tying up your working capital. Surety bonds cost a percentage of the bond amount, but collateral is usually not required. Looking at the alternatives, it is clear that a surety bond can be very beneficial to your company’s operations.
Fidelity bonds can benefit both your business and clients since they protect against employee dishonesty and are relatively inexpensive. A business service fidelity bond will protect your clients, while an employee dishonesty and ERISA fidelity bond will protect you and your business. Visit our fidelity bond catalog to discover more about fidelity bonds.
Surety bonds are not insurance for you; they protect the public. As said earlier, if you don’t fulfill your obligations, a claim will be filed which you will be held responsible to pay.
The bonding company will also require your company and all owners to sign an indemnity agreement to ensure the bonding company is held harmless against any losses you may cause. The agreement cannot be modified and the surety won’t be able to bond you if you do not sign.
The bond agency you choose to work with can make a gigantic difference. Choosing the wrong agency can result in slow turnaround time, extra fees and even failure to get bonded.
Whether you need a surety bond, or want a fidelity bond to enhance and protect your business, you can apply directly on our website. If you have any further questions regarding bonding, feel free to leave a comment below, or contact a bond specialist in our office for additional guidance.