Although most think that bonds only protect obligees, they also provide benefits to contractors. Surety bonding and small business insurance is necessary for large construction projects, and these bonds are used by small businesses in securing important licenses. If a contractor cannot finish a job on time, the surety company takes on a leadership role. Below is an analysis of the benefits of these bonds, as well as information on how SMBs can use them to reduce risk.
Contractors’ Surety Bonds
A bond for a contractor guarantees that a construction project will be finished according to the terms of the contract. When purchasing such a bond, the contractor must guarantee performance with their assets, and they are obligated to pay completion and legal fees if they fail to fulfill the contract’s terms. Although this sounds unappealing, a contractor’s bond protects a small business in a variety of ways. For instance, they can help a new entrepreneur endure the costs associated with a missed deadline, and they can protect the company from the legal ramifications of such a failure.
A license surety bond is necessary to open multiple types of service-based businesses. Here, the public acts as the obligee, which means that the insurer protects customers and ensures that the company provides services in accordance with Federal standards. Like business insurance, a license bond protects small business owners from capital claims while improving the company’s reputation. Because license bonds are necessary for those who need licenses for service industry jobs, they represent a vital component for startups in a variety of niches.
There are multiple types of commercial bonds, and most are used to mitigate risk for small businesses. For instance, a court bond guarantees that court orders will be followed, and it can be useful when utilized by a business that opts to settle its debts via the court system. Conversely, a fidelity bond protects companies and customers from employee theft and fraudulent activity. With these bonds, a small business owner can protect the company from claims that may occur when employees cause problems.
Being a small business owner can be exciting, but it comes with its share of risks. Although surety bonds are more protective of obligees than policyholders, they are an important step in keeping business processes relevant and transparent. With these bonds and workers compensation insurance, company owners can keep themselves and their businesses out of debt.