Surety bonds are increasingly important in the business world, especially among startups and small companies, and although more established companies have less to worry about, they can also benefit from ensuring payments and the completion of contractual obligations.
The practice becomes increasingly important when you’re just starting out and you need financial security at a low investment margin. Here is why your business might need surety bonds.
What do surety bonds do and who uses them?
Surety bonds are a financial tool that serves as a guarantee of performance or compliance in various business transactions. They are commonly used in industries where a certain level of assurance is required to protect the interests of all parties involved.
For instance, construction firms often need surety bonds when working with partners such as raw materials providers, architects, and designers, as well as a construction equipment rental agency to ensure that they will use the machines safely and return them in proper condition. In such cases, surety bonds act as a safeguard, assuring that businesses maintain proper caution and procedure, and if any issues arise, the bond can provide compensation and resolution, promoting trust and confidence in the business relationship.
Surety bonds reduce your financial risk
You can put anything at risk, except your family and business. When running a business, it’s imperative to ensure the work gets done, the obligations are met and payments are settled – and any one of these can go wrong at any point. In case something goes wrong and the work remains unfinished or is of subpar quality, surety bonds will minimize the amount of unpredicted expenses. This can save you plenty of valuable time and money.
Surety bonds let your customers feel safe
In case an error occurs and money is lost, customers and clients can rest assured that they have a backup that will keep their investments safe. Typically, clients expect that your business has a surety bond, and if you don’t, then most likely your competition does.
A surety bond gives more freedom
Having a surety bond can allow you to operate in areas where your competition without one wouldn’t be able to. Certain professions are required to obtain a surety bond in order to operate in a state or local jurisdiction, along with a license.
Surety bonds are inexpensive
The cost of a surety bond is typically very low, yet it offers various benefits to your business such as financial security and trust between business associates, customers and your company. The pricing varies from 1-10% of the full bond amount, although it can vary based on your bond type and financial capabilities as well.
A surety bond can guarantee payment
If you are having trouble with non-paying customers or clients that don’t deliver on their promises, a surety bond can guarantee you still get paid, no matter the situation. However, in order for the bond to guarantee a payment, you need to write a concrete policy that specifies that the bond is intended for this use.
You might need it for a court proceeding
If you’re involved in a court proceeding, you might need to obtain a court bond in order to ensure that all expenses will be covered and in the case of loss. These types of bonds can be difficult to obtain however, as they are deemed as high risk bonds due to the nature of the bond, and they almost always require you to post some form of collateral.
Protect your business internally
Unlike regular insurance, a bond can protect your business in case of embezzlement, fraud and theft from your employees. These are called fidelity bonds and they can either provide coverage for all or certain employees, ensuring protection from dishonesty or fraud, in case your business has a pension plan or other benefits.
Surety bonds, and their variants, can provide the security your business needs in order to grow safely and with success. If you’re not sure if you do need a surety bond, inquire with a professional for an assessment – they might be just the type of protection your company needs in order to pave the way for success.
