Q: What is a Surety bond?
A: A surety bond is an agreement that is in place to protect financial aspects of employing a contractor. The agreement is drawn up between the Surety (the Bond issuer) and the Principal (the contractor) to protect the Obligee (project owner or employer) from financial loss should you or one of your employees make a mistake or behave in an unethical manner whilst employed in the role.
Q: What kinds of businesses need a Surety Bond?
A: You should check with the local government that license your business in your area to see if you need to have a surety bond policy in place for your business. Even if it is not required by law for you to have a bond available, taking out a policy can help you to attain more work.
Q: How much will my bond cost?
A: Bond prices vary depending on a number of factors including how many employees you have, what kinds of work you do and the amount of cover that you require on your bond. The cost is normally an annual fee that works out to being a very small percentage of the total bond amount. If you have a bad credit history, or your business is assessed to be a risk, you may find that you will be paying a higher premium.
Q: What happens when a claim is filed against my bond?
A: The Company that issued your bond will perform an investigation into any claims that are made against your bond. The bond issuer will determine whether the claim is legitimate before deciding to take action. The contractor that owns the bond will be informed of their obligations and given the chance to financially settle the matter themselves. If the contractor ignores the request or does not have the cash on hand to pay the amount owed, the bond company will step in and settle the debts.
Q: Is my bond like insurance?
A: In some ways, it is, however you will still require a public liability insurance policy as well as any other insurance your business is legally required to have in your state. Your bond is insurance for your employer. If you were to break a law and impose a fine on the owner of the project that you were working on, your bond would be able to cover this cost quickly and allow the project to continue without being held over indefinitely due to lack of funds. The owner is confident hiring you to work on their project knowing that if anything went awry, they are financially protected by a third party company.
Q: What kinds of bonds are available?
A: Contract bonds are normally used by people working in trades such as electricians and plumbers. These bonds are a promise to employers that they will follow all laws regarding their work as well as meet all contractual agreements.
Commercial Bonds cover a range of areas. Motor vehicle dealers will have a bond as proof of compliance with all state and federal laws pertaining to the sale of new and used vehicles. Health care professionals will have a bond to prevent losses and fraudulent claims through Medicare or Medicaid.
Fidelity bonds are used by cleaning services to protect their clients against any theft by employees of the company. These are also used when a contractor may be required to handle cash that belongs to another business or entity.
Court bonds can be taken out as a guarantee of payment to lawyers or to the court for hearing your matter. You may have trouble attaining good legal counsel if you are unable to qualify to receive a bond policy.