The business world today is becoming increasingly risky and unpredictable. Therefore, if you are a business owner, you need to be more careful about the deals and contracts you get involved in. While it is not possible to completely eliminate the element of risk, there are steps you can take to mitigate it. Having a surety bond is one of the best ways of protecting yourself when it comes to contracts and agreements.
What is a surety bond?
It is an agreement between three parties; the company issuing the bond, the company offering the service and the entity receiving the service. The purpose of the surety bond is to ensure that the company offering the service complies with the regulations provided in the contract. The bond also provides avenues to offer compensation to the customer if the company fails to deliver on its promise.
Types of surety bonds
Surety bonds are important for different kinds of businesses and industries. There are two main types of surety bonds: contractor surety bonds and commercial surety bonds. Contractor surety bonds are used in the construction industry to protect customers in case the construction firm or contractor does not honor their commitment. Some of the contract bonds that might be required during the project include bid bonds, performance bonds, supply bonds, site improvement bonds and payment bonds.
Commercial surety bonds are those that apply to other industries outside the construction industry. The most common type of commercial bond is the license and permit bond which requires companies and contractors to abide by the laws of the state, city or county. This bond covers a wide range of industries including mortgage, medical, auto, insurance, health and travel.
Why are surety bonds important?
In today’s increasingly competitive world, business owners try to stand out from the competition by seeking to build trust with their customers. However, it is not enough to tell customers that your business or brand can be trusted and that you care about their safety. Having surety bonds is important because it is one of the best ways of backing up your claims. This will not only boost the credibility of your business, but could also increase your return on investment significantly.
How to buy surety bonds
Surety bonds are issued by insurance providers as well as independent surety companies. Therefore, you need to take time to shop around to find the best rates available. Applying for a surety bond is almost similar to the process of applying for a loan. You will need to submit your financial records, credit reports and other vital information for examination. If your finances or credit are not stable, you might be required to pay higher premiums. While basic bonds can be processed within a day or two, contract bonds and other complex bonds could take much longer due to the intense scrutiny required.