What Is a San Jose Surety Bond?
If you want to open a small business in San Jose, California, you might have to get licensed before you will be allowed to begin your business's operations. Many business licenses also have bonding requirements, which means you might need to purchase a surety bond as a condition of getting your license to operate your business.
License bonds that are required as a licensing condition are only one category of bonds. There are many other types of surety bonds based on your business's type and the industry in which you operate.
In addition to bonds required by state agencies, the City of San Jose might also have bonding requirements before you can obtain a permit to work on projects within the city. These types of bonds are commonly known as license and permit bonds. Determining your bonding requirements will involve checking with state and local authorities to ensure you understand your bond needs.
Some business owners confuse San Jose surety bonds with insurance. However, surety bonds are not insurance and have some unique differences you should know. Surety bonds are offered by companies specialized in the bonding process. While a bond company might have bond experts, insurance companies do not provide the same level of bond expertise. Your insurance company might offer surety bonds. However, an insurance agent or insurance broker might not have the same level of knowledge about bonds as they do about insurance, so going through your insurance agency might not be the best way to find a bond at the lowest price. Working with a reputable and experienced bond company can help you save time and money by finding you the best deal.
A surety bond is a contract between the following three parties:
- Principal - The party that must be bonded
- Obligee - The government agency or private party that requires the principal to be bonded
- Surety - The bond company that provides the bond as a guarantee the principal will perform as promised and obey the law
In addition to a license bond, you might also have to get other types of bonds during the course of doing business. For example, if you are a construction contractor, you might need to post the following contractor bonds if you want to perform work on projects valued over a minimum amount:
- Bid bonds - Surety bonds that guarantee you will follow through on a project if you submit the winning bid
- Performance bonds - Surety bonds that guarantee you will perform your duties under your contracts
- Payment bonds - Surety bonds that guarantee you will pay your suppliers and subcontractors for their work promptly
Some other types of bonds that a business might need in San Jose include the following:
- Alcohol tax bond - Bonds required of those who sell alcoholic beverages to guarantee they will remit the sales tax to the state
- Auto dealer bond - Type of license bond motor vehicle dealers must post to obtain a motor vehicle dealer license
- Commercial bond - Business bonds for providers of specific products or services.
- Court bond - A bond required by a court, including probate bonds or fiduciary bonds
- Fidelity bond - A type of bond required of plan administrators who operate ERISA employer benefits plans, including 401(k) plans and others
- Mortgage broker bond - Type of license bond a mortgage lender or mortgage broker must purchase to obtain a mortgage broker license
Your bond guarantees you will comply with the laws and regulations that govern your industry and avoid engaging in misconduct or fraud while operating your business. If you break the law, an aggrieved party can file a bond claim. If your bond company determines the claim is valid, the surety will pay the claim up to the total bond amount. However, you will be required to reimburse the surety in full. If you don't, the surety can pursue legal action against you and recover all the amounts it paid on your behalf as well as its legal fees and court costs.
Requirements to Get Bonded in San Jose
To get bonded in San Jose, you will have to submit a bond application together with some supporting documents to a surety company. The surety will then send your application and supporting materials through an underwriting process. The underwriters will analyze the level of risk the company would face if it agreed to approve your application. If your application is approved, the company will give you a free bond quote for the bond premium you will have to pay to get bonded.
The bond quote will be based on the factors the underwriters consider when evaluating your risk. Some of the factors include your credit score, your business's working capital, your business's available liquidity, its assets and liabilities, your experience and reputation, and more. Bond applicants with the highest credit scores and evidence of strong financial stability receive the lowest rates.
The bond premium quote you will receive will be a small percentage of the bond amount. This means you won't have to pay the entire amount of the bond you are required to post. If you have a great credit score, your rates might be as low as 1% to 5%. If you have problematic credit, however, your application might be denied, or you might have to pay higher rates.
Once you purchase your bond, the surety will prepare a bond form to provide the obligee with proof that you have met your bond requirements. No matter which type of bond you might need, you will have to undergo underwriting to obtain a surety bond. It's critical to keep good credit to receive the best rates.
Find Your Surety Bond
If you have learned that you need to get a surety bond, your first step should be to find the best surety company to meet your bond needs. A good surety bond company employs specialists who can not only help you find the right bond for your needs, but also do so at competitive rates.
Most Popular Surety Bond Types
There are many different types of bonds available. However, a few are more common than others. Here are a few of the most popular surety bonds in San Jose.
Getting an Auto Dealer Bond
All auto dealers in California, including in San Jose, are required to purchase an auto dealer bond before they can obtain an auto dealer license. Most motor vehicle dealers are required to post dealer bonds of a $50,000 bond amount. However, if you plan to deal in wholesale vehicles, motorcycles, or ATVs, you will have to post a $10,000 bond instead.
Getting a Freight Broker Bond
No matter where you plan to operate a freight brokerage, you have to obtain a license from the Federal Motor Carrier Safety Administration (FMCSA). The FMCSA requires all freight brokers to post a freight broker bond in the amount of $75,000 as a licensing requirement.
Getting a Contractor License Bond
The Contractors State Licensing Board requires everyone who wants to work as a contractor in California on projects valued at more than $500 to obtain a contractor license bond. You must post a $15,000 contractor bond as a condition of getting your contractor license.
How Much Does a San Jose Surety Bond Cost?
Your bond cost will not be the same as the amount of the bond you have to post. Instead, it will be a small percentage based on your underwriting factors and the type of bond you need. Your rates could be as little as 1% to 5% of the total bond amount.
However, if you have bad credit, you might have to pay significantly higher rates to obtain a bond. The surety will evaluate multiple factors to determine how much risk you pose. If you have great credit, your rates will be low. If you have bad credit, your application might be denied, or you might have to pay much higher rates.
Can You Get Bonded With Bad Credit?
If you have bad credit, that doesn't mean that you can't get bonded. You might be able to obtain a bond by going through JW Surety Bonds' bad credit surety bond program. Your rates will be higher than they would be if you had good credit and might be anywhere from 5% to 15%. Our bond experts will work to find you the best rates by working with our numerous surety company partners.