What Is a Sacramento Surety Bond?
As a business owner in Sacramento, you might be required to obtain a license to legally operate your company in the city. Many different types of businesses are required to obtain licenses before they can begin their business operations, and a common condition of obtaining a license is to post a surety bond. Bonds that are required as a condition of obtaining a license are called license bonds. There are other types of surety bonds you might also encounter, depending on your industry and business type.
The City of Sacramento might also require you to obtain permits and permit bonds to perform work in the city. Since you might have bond requirements at both the state and local levels, you should make sure to check with both to determine your licensing or permitting and bonding requirements.
A Sacramento surety bond is not the same thing as insurance. However, there are some distinct differences that you should understand. Bond companies offer surety bonds and specialize in the process, making them true experts on the subject. While insurance companies might offer bonds in addition to insurance products, an insurance agent is not a bond specialist and might not be as familiar with surety bonds, which means you might not get the best deal if you go through your insurance company.
The bonding process involves the following parties:
- Principal - The business that must purchase a surety bond
- Obligee - The licensing authority or private project owner that requires the bond
- Surety - Bond company that issues the bond and guarantees the principal's performance and legal compliance
License bonds are just one type of surety bond. You might encounter many other types of bonds based on your business type. If you are a contractor, for example, you might also have to purchase the following types of contractor bonds to perform work on construction projects worth more than a minimum threshold:
- Bid bond - A bond that is required before you can bid on public projects
- Performance bond - A bond that guarantees you will perform your contractual duties
- Payment bond - A bond that guarantees you will timely pay your subcontractors and suppliers
Other bond types that you might need based on your business include the following:
- Alcohol tax bond - Required if you plan to sell an alcoholic beverage and guarantees you will remit your sales tax to the state
- Court bond - Includes probate bonds and fiduciary bonds that are required by courts for those serving in fiduciary roles
- Fidelity bond - Bonds required of ERISA plan administrators, such as 401(k) plans
- Mortgage broker bond - License bond required for a mortgage broker or lender
- Commercial bond - Various types of business bonds
- Auto dealer bond - License bond required for motor vehicle dealers and dealerships to obtain auto dealer licenses
When you purchase a surety bond, your bond guarantees that you will follow the law and avoid misconduct in your business dealings. If you violate the law or your bond conditions, the parties you harm can file a bond claim against your bond. Your bond company will investigate, and if it finds that the claim is valid, it will pay the claim up to your bond's maximum amount. However, you will have a legal obligation to reimburse the surety in full or risk legal action.
Requirements to Get Bonded in Sacramento
To get a bond, you will have to apply to a surety company and submit supporting documents. The surety company will conduct an underwriting process to evaluate the risk it would face if it approved your bond application. If the company agrees to approve you for a bond, it will give you a free bond quote for the bond premium, which is what you will have to pay to purchase the bond.
The quote you will receive will depend on several factors the underwriters consider, including your credit score, available working capital, assets, liabilities, experience, reputation, and others. Applicants with great credit scores typically receive the best rates. Your bond premium will be a percentage of the required maximum bond amount, meaning you will not have to pay the entire amount of the bond to purchase it.
If you have an excellent credit score, you might have to pay as little as 1% of your bond amount. After you purchase your bond, the surety will provide a bond form that shows the obligee you have complied with your bond requirements.
All surety bonds go through the underwriting process, including contractor bonds, license bonds, commercial bonds, and others. Regardless of your bond needs, you can anticipate going through underwriting before you will be approved for a bond. To get the lowest rates, it is important for you to maintain a good credit score.
Find Your Surety Bond
If you have found out that you have bonding requirements, you need to find a surety bond to meet your bond needs. The best approach is to go through a reputable surety bond company. While an insurance broker or insurance agency might also help you find a bond, an insurance company doesn't specialize in bonds and might not know about all of the programs that might be available.
By contrast, a surety bonding company like JW Surety Bonds can help you save time and money while finding the best bonds at the lowest rates for you. A commercial surety that understands the unique needs of your business will help you find the types of bonds you need quickly.
Most Popular Surety Bond Types
While there are many types of surety bonds, a few are the most common. Below are a few of the most common types of bonds you might encounter in Sacramento.
Getting an Auto Dealer Bond
No matter where you want to operate a dealership in California as an auto dealer, you will be required to purchase an auto dealer bond. Motor vehicle dealers in Sacramento are required to post motor vehicle dealer bonds in the bond amount of $50,000. These bonds are required as a licensing condition by the California Department of Motor Vehicles. If you only want to deal in motorcycles, ATVs, or wholesale vehicles, your bond amount will be $10,000.
Getting a Freight Broker Bond
Whether you want to work as a freight broker in Sacramento or anywhere else in the U.S., you will be required to obtain a freight broker bond in the amount of $75,000 before the Federal Motor Carrier Safety Administration will issue a freight broker license to you.
Getting a Contractor License Bond
If you are a contractor in California and want to work on construction projects worth more than $500, you must obtain a license from the Contractors State Licensing Board. A condition of obtaining your contractor license is to post a $15,000 contractor license bond.
How Much Does a Sacramento Surety Bond Cost?
The bond cost you will have to pay depends on the bond amount required by the public official and your underwriting factors. For example, if you are a freight broker who must post a $75,000 bond and have excellent credit, you will only have to pay a small percentage of the total bond amount to secure your bond. Depending on the type of bond you need, your rates could range from as low as 1% to 5%.
By contrast, if your credit is problematic, you can anticipate paying much higher rates. When you apply for a bond, the surety will assess your credit, your business's available working capital, your experience in the industry, your reputation, and other factors to determine your level of risk. If you are stable and have great credit, you can anticipate paying a lower bond price.
Can You Get Bonded With Bad Credit?
Having bad credit doesn't mean that you will be denied a bond. However, you might have to go through JW Surety Bonds' bad credit surety bond program to get bonded. If you have to go through the bad credit program, your rates will be higher and likely will range from 5% to 15% of your required bond amount. Your bond experts will strive to find the best prices for you through our partnerships with top-rated surety companies.