The following is a guest post from Kevin Kaiser, a principal at SuretyBonds.com, dedicated to being the nationwide surety bond resource. Thanks, Kevin!
Starting a business can be an incredibly busy and often painstaking endeavor, and it’s easy for a few things to get lost given all the business planning, legal legwork and preparation. Don’t let surety bonds be one of those absent items. Not only are they legally mandatory for a host of new businesses, but they’re an incredibly important risk-mitigation and customer support tool for businesses that aren’t required to purchase them.
Surety Bonds: What They Do
In essence, these are three-way agreements that protect consumers, taxpayers and other companies or private entities. More like a form of credit than insurance, surety bonds guarantee that a company or person will follow all laws and regulations and the letter of a contract. They also give consumers and taxpayers who are harmed a way to recover funds. For many types of businesses, Florida surety bonds are required in order to receive a license and legally conduct business in a the state. Examples include real estate brokers, fitness club owners and automobile dealers. Contractors and construction firms are also subject to surety bonds in most building environments. They play a key role in ensuring construction projects are completed on time and up to contract and code. But businesses and start-ups that aren’t required to obtain surety bonds can still benefit by purchasing them. Fidelity bonds can protect businesses from financial ruin in the event their workers steal or conduct other illegal activity. Smaller start-ups can give consumers a greater degree of confidence by securing bonds – prospective customers will know their interests are taken to heart.
Surety Bonds: How They Operate
In cases where bonds are mandatory, the company secures bonding and files the bond with a state agency or other proper obligee. In turn, that agency then releases a license and allows the firm to legally conduct business. With construction bonds, if a contractor fails to pay subcontractors or somehow else violates the contract, for example, stakeholders can file a claim against the bond and seek to have the work finished or receive proper compensation. Consumers who feel a business has harmed them can also file a bond claim and seek financial redress. Surety companies rarely take losses and will go to great lengths to ensure the principal makes good on compensation.
Surety Bonds: How Do I Get Them?
Entrepreneurs can purchase surety bonds from insurance companies or standalone surety firms. Some bonds can be processed in one day, while others require a strict underwriting procedure not that different from obtaining a loan. In terms of costs, they vary depending on the type of bond, the financial condition of the applicant and the market at large. In general, the premium cost for a bond will range from 1 to 3 percent of its face value. But applicants that wind up in a high-risk market can pay anywhere from 5 to 20 percent in bond premiums.
