The majority of people looking into surety bonds have actually never heard of them until they’re told they need them. Simply put, bonds are used within business to give your customers security that you’ll follow through on any promises and meet your obligations.
If you’ve been told you need a bond for your business, the chances are that you’ll need to get one. Why? Because they provide several invaluable functions.
Why You May Need a Surety Bond
There are many reasons you might find yourself in need of a surety bond, but there are three that come up more often than others.
1) You want to protect your business
Although most types of surety bonds are usually legally required of businesses, there is one type that’s optional. It’s called a fidelity bond.
Fidelity bonds act as a security against intentional wrongdoing from your employees. This commonly includes theft, fraud. and embezzlement. These areas usually aren’t covered by standard insurance policies, so it’s well worth getting.
Fidelity bonds can be customized to meet your requirements. For example, if you only want to cover certain employees within your business, this can be arranged. There are also fidelity bonds that cover specific purposes, such as preventing fraud or dishonesty with a company pension plan.
2) You have a new construction project
Surety can come in handy particularly when you’re undergoing a new construction project. These are known as contract bonds and typically cover payment, bid, and your contractor’s performance throughout the project.
Contract bonds are specific to the project, and all work to ensure specific outcomes will be achieved. For example, a bid bond might make sure your contractor follows through on your contract if they’ve bid on it.
3) You have an upcoming court proceeding
If you have a court proceeding coming up, the court might ask you to take out a court bond before moving forward. These bonds will protect you from any potential losses as the result of a court proceeding. Types of court bonds include replevin bonds, indemnity to sheriff bonds, and cost bonds.
Court bonds, however, are usually seen as being incredibly high-risk. As a result, it’s required for the applicant to provide collateral against the value of the bond, making them costly to obtain.
What You Need to Consider
Although not all surety bonds are legally required, many of them are sensible to have. They act as a method of risk assessment for your business, reducing the liability you hold, as well as the liability others take on when they work with you. As a result, you might be told you need a surety bond, or you might simply decide to take a fidelity bond to fortify your business’ financial security.
Above all else, the general rule is that if you’re told you need a bond, you more than likely do.
Bond costs can vary, but if you and your business have good credit, you shouldn’t be looking at paying more than 4% of your total bond amount.