Understanding Surety Bonds and How They Protect Your Business

August 16, 2013

Tech Tips

Risk is inherent in business. Starting a company, launching a new product, and hiring staff all contain a certain degree of risk. A wise business owner, however, protects himself from risk by limiting what he stands to lose if things don’t go his way. What are surety bonds, and just how can they protect your business? A surety bond, sometimes referred to as a surety, is simply nothing more than a promise to pay a party (termed the obligee) a specific amount if another party (termed the principal) comes short of satisfying some obligation. A prime example of this obligation would be the fulfillment of the exact terms of a contract. This type of bond then acts as insurance by protecting the obligee from losses that came about from the failure of the principal to satisfy the obligation.

What Are Surety Bonds?

In essence, a surety bond is just a contract between three people. If a business owner obtains a surety bond, he then makes a promise to obey the rules for his job and pursue only favorable business decisions. Said business owner typically makes this promise to the government because the government wants to ensure that the business owner runs his business well. The third party involved is termed the surety, and this individual confirms the business owner’s promise to the government. If the business owner errs in some way, the surety sees to it that the business owner corrects the error or else pay additional fines. A surety bond, then, is a form of insurance.

Surety Bonds Increase Your Credibility

It is a great idea for a business to obtain this form of bond, as businesses that have surety bonds are seen as more legitimate businesses. Local, state and federal governments all possess various laws that actually mandate that people in certain professions get these surety bonds. This is done to increase the chances that the owner will behave legally and make smart decisions for both his employees and his clients. Let’s say you’re opening up an online mortgage company. You must obey all laws in your own jurisdiction. This includes following all laws to get a business license, which, in many states, also includes getting surety bonds.

How to Get Surety Bonds

Doing some online research is the very best way to determine if you need bonds of this type. It turns out that many states actually post their bond details on their official state government websites. Alternately, you can get in touch with either a surety agent or an insurance agent to get them to assist you. It will also help a great deal if you know precisely where you want to open up your business, as various states have different laws and rules for obtaining bonds of this type.

A surety bond is a good thing to have because it does nothing but protect your business. There is nothing like building up credibility when you have a business, and bonds like these are fantastic at proving to your employees and your clients that you intend to do the best job that you can. It is also a great idea to even advertise the fact that you have these bonds on your business web site. That will surely give you more business and more customers who are willing to deal with you.

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