Business Bonding Insurance

Guide to Bonding Services for Small Business

How to give your customers peace of mind, for little cost
By John Fuller

Getting bonded gives your business an edge over the competition. A bond, or surety bond, is a three-party guarantee insuring that a product or service is made or delivered, and that specific rules are followed. Although most surety companies are also insurance companies, getting bonded is more comparable to getting bank credit than to buying insurance.

Most contractors are bonded, but now other small businesses are using bonds to put their customers at ease and to generate more business. Any business where you enter someone's home, such as housekeeping or pet-sitting, can benefit from being bonded. Also, some states require bonding for certain professions, such as real estate agents. Bonding is relatively inexpensive and can also protect you if your employees commit a crime while on the job.

The main types of bonds are:

1. A bid bond guarantees that the contractor will enter into contract at bid price
2. A performance bond guarantees the work will be done
3. A payment bond ensures subcontractors and suppliers are paid
4. A fidelity bond protects the employer in case of any loss of money or property due to employee dishonesty
5. A license bond is required by some states for certain businesses and guarantees you will comply with statutes and regulations

Action Steps

The best contacts and resources to help you get it done

Get your paperwork in order Submitting a complete package of information to the bonding company will speed up the process. Your accountant or financial planner will need to provide some of the information, but some will have to be provided by you, such as a business plan, your work history and resumes of key employees.

I recommend:  View some sample forms at The Surety and Fidelity Association of America.

Find an agent You can most likely go through your current insurance agent, but make sure they have experience handling bonds.

I recommend:  Find a surety bond producer in your state at the National Association of Surety Bond Producers. If you're working on a project for the federal government, you will need a surety that has a certificate of authority from the U.S. Dept of the Treasury.

Check SBA bonding assistance If you're a small or emerging business that is having trouble getting bonded through commercial firms, the U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $2 million, covering bid, performance and payment bonds.

I recommend:  Get additional information and find out if you qualify for the program from the SBA.

Tips & Tactics

Helpful advice for making the most of this Guide

• A bond is not an insurance policy. A bond will not cover you for property damage or injury resulting from your work.
• Get your references set up. The bond provider is going to ask for them.
• Make sure your accountant understands the nuances of your business and can provide the boding agent the information needed to get you approved.