What Is a San Francisco Surety Bond?
Many businesses operating in the City and County of San Francisco have licensing and bonding requirements. Depending on the type of business you would like to operate, you might be required by a state or federal agency to obtain a license.
Getting a license legally authorizes you to conduct business in San Francisco, and most agencies require you to get a surety bond as a condition of obtaining your license.
In addition, the city and county might also have their own permit and bond requirements, so you should check your local jurisdiction to learn whether you might have separate requirements there to obtain permit bonds even if your particular business is not required to be licensed by the state.
What is a surety bond? A surety bond in San Francisco differs from insurance, although they might be offered by insurance companies. Bond companies offer surety bonds and function as experts in the process. When you purchase a surety bond, you will enter a contract between you and two other parties as follows:
- Principal - Business owners who have bonding requirements
- Obligee - Governmental agency that imposes the bond requirements
- Surety - Bond company or insurance company that issues the bond
License bonds are only one type of bond. Depending on your business, there are other types of bonds you might encounter in the course of operating your business.
For example, if you are a construction contractor, you might be required by the state, city, or a private project owner to obtain the following types of construction bonds before contracting to perform work worth more than a threshold amount:
- Bid bonds - Bonds required to bid on projects
- Performance bonds - Bonds that guarantee your performance under a contract
- Payment bonds - Bonds that guarantee you will pay your suppliers and subcontractors for their work
For example, the San Francisco City and County Administration might require these types of bonds before you can perform work on a municipal project.
Other types of bonds that might be required include the following:
- Court bonds - Required by courts to ensure a party will follow court orders, including probate bonds or fiduciary bonds for those serving as a fiduciary
- Fidelity bonds - Required under ERISA for administrators of employer-sponsored benefits plans such as 401(k)s
- Commercial bonds - Various types of bonds for businesses
- Auto dealer bonds - Required of auto dealers and car dealerships
- Alcohol tax bonds - Required if your business plans to sell alcoholic beverages
- Mortgage broker bonds - License bond required for mortgage brokers to obtain licenses
A surety bond guarantees you will comply with the law and your contractual obligations. If you violate the conditions of your bond or break the law, your bond guarantees reimbursement to the parties you have harmed through bond claims.
An aggrieved party can file a bond claim. Your surety company will investigate, and if it finds the claim is valid, it will pay the claimant for their losses up to your bond's penal sum. However, you will have to repay the bond company in full for all amounts it pays on your behalf.
Requirements to Get Bonded in San Francisco
Being approved for a bond is not an automatic process. Instead, you will have to submit an application together with supporting documents. Your surety company will then send your application through underwriting to determine your level of risk. If it decides to approve your bond application, it will provide you with a free bond quote for the bond premium you will have to pay to secure your bond.
The free quote will be based on several underwriting factors, including your credit score. People with excellent credit scores generally receive the lowest rates. The bond premium is a percentage of the total bond amount that you must pay upfront to purchase your bond and can be as low as 1% of your total bond amount. Once you purchase a bond, the surety company will issue a bond form to the obligee showing you have met your bond requirements.
The same process is used for license bonds, contractor bonds, and other types of bonds. No matter which type of bond you need, you will have to go through the underwriting process before your application will be approved. Since a license bond is a requirement for legally operating your business, it is critical for you to maintain good credit to get the lowest rates.
Find Your Surety Bond
If you've learned that you are required to be licensed and bonded, you will then need to determine how to find the right surety bond for your business. Your first step is to find the right surety bond company to meet your needs.
While an insurance agency might also offer bonds in addition to insurance products, a good bond company employs specialists who focus on finding the right bonds for businesses and would be a better choice. Insurance agents might not have much experience with surety bonds or have access to the best programs, which can cause you to waste time and money.
A surety company can save time and money since they specialize in underwriting bonds and have access to numerous programs to meet your bond needs so that you can get the lowest rates and be bonded quickly. If you have bad credit, a good commercial surety will likely offer bad credit programs to help you obtain a bond.
Most Popular Surety Bond Types
As briefly mentioned above, there are many different types of surety bonds. However, there are a few types that are more common than others. Here are a few of the most popular types of surety bonds in San Francisco.
Getting an Auto Dealer Bond
Auto dealers and dealerships in the state of California are required to obtain dealer bonds. In San Francisco, a motor vehicle dealer must post a $50,000 motor vehicle dealer bond and secure a license. The California Department of Motor Vehicles issues licenses to vehicle dealers in the state. For those who only want to sell wholesale vehicles, ATVs, or motorcycles, the auto dealer bond cost is $10,000.
Getting a Freight Broker Bond
Freight brokers in San Francisco are required to purchase a freight broker bond in the amount of $75,000 to obtain a freight broker license from the Federal Motor Carrier Safety Administration. This is the same requirement for freight brokers operating anywhere in the U.S.
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 San Francisco Surety Bond Cost?
Your bond cost will depend on the total bond amount that you are required to post by the public official. While you might have to post a $15,000 bond, for example, you will only need to pay a small percentage of the total bond amount. If you have great credit, your bond premium might range from 1% to 5%. The percentage you might receive for your bond quote will also depend on the type of bond you need.
The surety company will evaluate your personal and business credit, your business's finances, your assets, available working capital, and your reputation to determine your risk level. Your bond price will be lower if you have good credit, experience, sufficient liquidity, and a stable profile.
Can You Get Bonded With Bad Credit?
If you have poor credit, you might still be approved for a bad credit surety bond with the bad credit program through JW Surety Bonds. This program allows applicants with poor credit and other financial issues to get bonded.
If you need to go through the bad credit program, you can anticipate paying higher bond rates ranging from 5% to 15%. Our bond experts will still work to get you the best available price through our partnerships with great surety companies.