When starting a small business, one of the most important things you need to do is protect your customers. This means having the proper business insurance coverages and a surety bond in place.
Many small businesses don't know where to start when it comes to getting bonded and insured. Setting up the proper insurance, risk management, and bonding can be just as important as hiring an accountant, lawyer, or banker. Hiring an expert insurance company, like World Insurance, that understands the needs of small businesses is crucial.
In this blog post, we will walk you through everything you need to know about becoming bonded and insured. We'll also provide some tips on how to save money on your coverage.
Bonds offer a type of financial guarantee that is required to secure a contractor license. They are often used in construction projects but can be required for other types of businesses as well. There are many different types of bonds available, and the one you need will depend on your business' needs.
For example, surety bonds can help businesses guarantee performance and obligations. If your business is unable to meet its contractual obligations, the surety company will step in to cover the costs. This type of bond is often required by businesses that work with the government, or bid large sums of money on projects.
Other types of small business bonds include:
Getting bond insurance is one of the most important things you can do for your small business. Not only does it protect your company, but it also shows potential customers that you're a reliable business that can be trusted.
For example, bond insurance can help if:
Bond insurance can also be used to pay for accidents or damages to a third party, protect your business against slander or libel, and cover employee injuries.
It's important to have bond insurance because it financially protects your business against these types of claims. If you don't have bond insurance and you're faced with a lawsuit, you could be forced to pay out of pocket for any damages or settlements. This could ruin your business financially.
The coverages that are normally put in place for small business bond insurance include:
A surety bond is not insurance. Rather it is a guarantee from a bonding company that a business will fulfill its contractual obligations.
A small business may require several different types of surety bonds to meet the requirements of their customers, or local, state, and federal statutes.
A surety bond is a written agreement between three parties:
Most bonding companies issue surety bonds through an agent or broker so finding an experienced broker that specializes in surety bonds is key.
A professional surety bond broker will guide your company through this process and assist you in establishing a relationship with a bonding company that will meet your needs.
The first step in getting bonded is to contact a surety company or agent to request a quote. The surety will then review the business owner’s personal and business finances.
Once the surety company approves the business owner, they will provide a bond application that must be completed by both the business owner and the obligee.
After the bond is issued, the small business owner pays the premium to the surety company and signs a contract (called an indemnity agreement) agreeing to reimburse the surety company if any claims are made against the bond.
The application procedure for a surety bond is similar to that of obtaining a loan. Before signing an agreement, the bonding firm will want to meet and prequalify your company in the same way that a bank would. This is because the surety is guaranteeing your business' performance and/or compliance obligations to the obligee (entity requiring the bond).
The surety first looks through a company's files to "pre-qualify" it for surety credit before issuing a bond. Before agreeing to any surety bond or bond program, the surety must be confident in the business' character, capacity (experience), and credit.
The surety's primary goal in requesting a bonding approval is to establish the conditions under which the bond will be used. The information sought by the surety to grant a bonding approval depends on the sort of bond. Some bonds may be approved with just a one-page application, while others might need additional details, as shown below:
In a nutshell, the bonding firm wants to ensure that the company is reputable, well-run, has solid credit, is financially stable, and can fulfill its bond obligations. The surety also examines the principle's (business owner) character and ability to carry out tasks as well as their dedication to the business.
The cost of the bond is based on a percentage of the total contract amount and is paid by the business owner to the surety company. The premium for a small business bond is generally between $100 and $500 for a $10,000 bond policy. The premium amount will be determined by the business owner's credit score, financial stability, and the type of bond required.
Many industries require some form of a bond, but not every business needs to be bonded. The best way to determine if your business needs to be bonded is to consult with your industry association or the government agency that regulates your business. You can also contact a surety company to discuss whether or not bonding is right for your business.
Whether you're a home-based business owner or you have a brick-and-mortar storefront, World Insurance can help you get the bond you need. We work with a variety of small businesses, so we understand the unique bonding needs of each industry.
Our small business surety and fidelity bonds are available in all 50 states, and we can provide you with the coverage you need at a price that fits your budget.
Contact us today to learn more about our small business bonds and how we can help your business grow.
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