A surety bond is like a guarantee from one company to another party and is business as normal for many organizations. At its core, the word “surety” signifies a formal engagement provided for the fulfillment of an activity. For business purposes, it could be a bond to ensure timely payment to vendors or contract completion; there are other kinds of surety bonds as well.
How Can I Get Surety Bonds?
Companies need to have licenses and insurance coverage to operate, and surety bonds may or may not be optional. Unlike traditional two-party insurance policies, surety bonds are three-way agreements between businesses, the other party, and the surety company. That surety provider is not directly responsible if the agreement is broken.
State insurance departments regulate surety providers, and this underwriting is seen as a form of credit. Because of this, surety companies look at a business’s financial history, credit history, and so forth. When claims are made, the surety company gets reimbursed by the business that purchased it.
The three main kinds of surety bonds are bid, performance, and payment.
- Bid bonds guarantee that a contractor will submit a bid in good faith and enter the contract at the designated price.
- Performance bonds protect business owners from financial losses when contracts do not fulfill their contract document requirements.
- Payment bonds assure that contracts get paid.
In the United States, surety bonds can be written out by insurance company divisions and subsidiaries that handle these agreements. Surety companies are certified and regulated by the state insurance commissioner and may have more oversight. The Small Business Administration guarantees bonds for select surety companies, and this can be a green light for those companies to sell the bonds to small businesses that might not have qualified.
Why Should I Get a Surety Bond?
Surety bonds are required by law in many instances but even if this does not apply, your business could benefit from having one or more of them. They protect clients who sign contracts and make them more credible. Should you be unable to deliver on agreed-upon services, a surety bond could reimburse your client and protect your reputation.
If you hire subcontractors, having surety bonds will help reduce the amount of risk you are taking on. The bonds can relate to bids, performance, and payment, but keep in mind that the bond threshold requirements may change on different projects, reflecting the amount of the subcontract, timelines, and scope of work.
What Industries Use Surety Bonds?
Besides construction, the transportation industry also makes good use of surety bonds. The majority of these are necessary according to various laws. This makes sense because there is considerable risk involved with both.
The automobile industry is also big on surety bonds; auto dealers need them because of state government regulations. There are also certificates of title bonds and vehicle registration services bonds. Licensed insurance brokers, notaries, retail businesses, farmers, medical suppliers, assisted living facilities, and lawyers also often need to get bonds.
Individuals who own private businesses or take on private projects do not necessarily need to buy safety bonds, but they may enter into agreements that require them. As an example, a lender who is financing a private home renovation would probably want construction surety bonds from the contractor.
The Philadelphia Business Attorneys at Sidkoff, Pincus & Green P.C. Can Help You Choose the Right Kinds of Surety Bonds for Your Business
Surety bonds can protect your business, finances, and reputation from risk, but they are not the same thing as traditional insurance. To learn if one is right for you, contact the skilled Philadelphia business attorneys at Sidkoff, Pincus & Green P.C. Call our Philadelphia office at 215-574-0600, or complete our online form to schedule a confidential consultation. We serve businesses throughout South Jersey, Pennsylvania, and New Jersey.
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