Surety Bond Basics

Most industries have set surety bond regulations to ensure financial protection for investors, consumers, taxpayers, the government, and sometimes even the bondholder. In the business realm, it's important to realize that certain jobs require a surety bond to be secured before a professional can be issued a business license. Contractors, health care providers, car dealers and telemarketers are just a few professionals who need to be bonded before beginning their work. Surety bonds function as a contract enacted to prevent fraud and other unethical behavior in the workplace. The bonded entity, such as a business owner, gets a bond to guarantee he will follow all regulations. Failing to do so allows a wronged party to make a claim and receive reparation up to the bond's full amount. For example, new business owners frequently get an employee theft bond to protect against employees who might choose to act unethically in the workplace. If an employee theft bond is in place when an employee steals from the business, the owner can recollect the stolen funds and avoid possible bankruptcy.


Advantages of investing in bonded companies


Investors, consumers, and business professionals alike prefer working with bonded companies because of the extra security and stability provided by the bond's legal protection. The bond's financial guarantee also holds companies accountable should they take advantage of individuals they work with—as those harmed can make a claim on the bond to receive financial reparation. Investing in companies that aren't bonded could be risky since the company doesn't have a surety in place to financially back its business operations. Working with a bonded company gives consumers and professionals additional assurance because the company has made the extra effort to establish itself as trustworthy enterprise.


Surety bond amounts and fees


For companies looking to get bonded, surety bond amounts will vary for a number of reasons, including the specific bond type, the principal's financial history, and where the bond is issued. For example, Florida surety bond regulations vary from California surety bond regulations. Mortgage brokers in Florida typically have to secure a $10,000 surety bond, while talent agents need a $5,000 bond. Contractors working on public projects in California usually need a bond before beginning work on project, and amounts could range from $2,000 to millions depending on the scale of the project. Surety providers charge the principal a fee that usually costs between 1 and 3 percent of the bond's total value. If a typical principal with a good credit score needs a $10,000 bond, he will probably pay $100 to $300 to secure the bond. Bond fees increase for principals with poor financial histories, as the surety provider takes a greater risk in guaranteeing the quality of the principal's work. Getting a surety bond Historically, insurance companies issued surety bonds, but with new bonding regulations constantly on the rise, surety agencies that specialize in issuing bonds have emerged to serve professionals seeking bonds. Additionally, the Small Business Administration Office of Surety Guarantees provides bonding services to qualifying new and/or small businesses. This can be especially beneficial for those who lack a strong financial history or the sufficient collateral to secure necessary bonds. No matter how a small business achieves a bonded status, doing so ensures investors and other professionals that the enterprise gets started off on the right foot.
Kevin Kaiser is a principal with SuretyBonds.com. He has been actively educating consumers about the surety bonds through the Surety Bond Education Program that he pioneered two years ago.
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