What is a Bonding Company
You’re getting ready to sign a contract or hire a business to work with you. After evaluating the promised services, how do you know the company will deliver? Many contractors or businesses will list “licensed, insured, and bonded” in their credentials. “Licensed” is straightforward; the individual or business has a permit from the government to perform the work or service. “Insured” also makes sense, in part because we may buy our own insurance. Insurance protects the individual or business from financial liability or loss that may occur while conducting business.
The bonded company definition is less well known. Bonding is a valuable investment for companies, contractors or small businesses seeking to build trust with customers. A bonded company has purchased one or more kinds of surety bonds. A bond is a promise between three entities – the customer, the company, and a bonding agency. The company will work with a reputable carrier such as Liberty Mutual, The Hartford, or Merchants Bonding Company to guarantee to the customer that the company will fulfill its promised service. If an organization fails in its promise, the customer can file a claim with the org to recover any funds invested for the unfulfilled service. The bonding company has secured funds or identified assets and has placed these funds or assets in control of the state. If you need to file a claim against the organization, these funds are available to reimburse you. It’s important to note that a surety will not reimburse a customer if property is damaged or if someone gets hurt. Bonds deals specifically with promised business services.
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With 25,000 kinds of bonds available, it may be helpful to verify the type of bond or bonds the involved company carries as you evaluate whether to do business with them.
Some companies, like mortgage lenders and motor vehicle dealers, are required by law to buy a license and permit bond to get a license to do business.
Businesses with direct contact with customer’s homes or belongings, like cleaning services or moving companies, may invest in a business service bonds. This type of bond protects customers if the company’s employees steal from the customer while in their home or working with their belongings.
If you are working with a construction firm or contractor, you may want to determine if the company carries a contract bond. A contract bond helps insure the company stays on budget, delivers on time, and performs the promised services.
Determining the Authenticity of Surety Bonds
Now that you understand the bonded company definition and the types of bonds to verify, you can take the following steps to determine if a company’s claim about being bonded is authentic.
- Talk with your local city hall or township team to find out their bonding requirements for companies or contractors. Your state will also have guidelines for companies and consumers. Most states have an agency or board responsible for professional licensing and bonding. Since requirements vary by state and municipality, understanding what’s expected of companies can help you with your research.
- You can work with a lawyer to help you understand the types of bonds needed for your agreement with a company or contractor. The lawyer can also tell you the protection the bonds provide.
- Ask an organization or the contractor for a bond number and certification. You can ask for a copy of the bonds they hold. This documentation should have the contact information for the surety company providing the bond. You can reach out to the surety organization directly if you have questions or concerns. Be sure to check the date and duration of the bond to confirm coverage is up to date.
- The Surety and Fidelity Association of America maintains a list of members that have volunteered to be included. You can access this list to find out how to contact a bonding company to authenticate it.
What Bonds tell you about an Organization:
The bonded company definition extends beyond a piece or pieces of paper. When an org or contractor tells you they’re bonded, they’re letting you know the following facts about them:
- They are law-abiding. By investing in a license and permit bond, they are telling you they’ve followed the legal requirements of the state or municipality for doing business.
- They are trustworthy. With a business bond, the organization is assuring you their employees will respect your property and belongings. If an employee falls short of expectations, the entity will step up and repair the relationship with you.
- They are reliable. A contract bond tells you the comp has put money and assets on the line to guarantee they will deliver on time, on budget and as promised.
- They are reputable. Before selling a bond, the surety organization has investigated an entity or contractor to make sure they are honest, compliant, trustworthy, and financially sound. If an organization or contractor is bonded, you can feel reassured that a reputable third party, the surety firm, has done some of your homework for you.
Bonds help companies build their reputations with customers. Strong customer relationships help businesses grow, attract qualified workers, and deliver quality products and services. Good workers, quality products and services, and dependable performance leads to business longevity.
Companies or contractors who invest in them have made a sound business decision. But take time to verify that their paperwork is accurate and timely. You’ll feel more confident about your decision to do business with them, and they’ll know you want to work with a good company.
Surety by NFP has been the leader in bonding solutions since 1984! Let our team of expert bonding professionals show you how to get properly bonded today!