Bonded in Business
In today’s business world, the importance of being bonded cannot be overstated. Most businesses are fueled by contracts, and surety bonds present an avenue for the proper implementation of these contracts. In fact, surety bonds have become a requirement in most industries because of the multiple benefits that they provide for both businesses and their customers.
What does it mean to be bonded in business? Surety bonds facilitate transactions in the construction, licensing, automobile, and even the legal sector. They are so important because they provide a level of assurance and protection to both businesses and their customers. Being bonded in business therefore means that you are adequately prepared to offer reliable products and services to your customers.
In order to understand the importance of being bonded in business, we need to first begin with explaining what a bond is, how they work, and their applications across various industries.
Understanding what a surety bond is
In the world of business, a bond is a legally binding contract that is signed between 3 parties. These parties include the principal, the surety, and the obligee. It all begins when a person/entity (the obligee) seeks the services of a particular business. The obligee may need to have a particular service carried out, such as a construction project or repairs to their premises.
When an obligee looks for a company that can be of service to them, the obligee would want to make sure that they select a company that will fulfill the terms of their contract. The company providing the service (referred to as the principal) can offer an assurance for its services by getting bonded. What the surety bond does is that it guarantees that the principal will provide their services in the manner that is stipulated in the contract. If the principal fails to do the work as expected, the entity can make a claim against the bond for damages incurred as a result of the work done.
But how does the surety compensate the obligee when they fail to fulfill the contract? This is where the third party to the bond comes in: the surety. The surety is an insurance company that issues bonds to businesses. It is the surety that will be responsible for compensating the obligee in case a claim is made. In most situations, an agreement is reached between the surety and the principal as to how the surety will be repaid in case a claim is made.
What a “bonded business” means
Any business that has obtained a surety bond from the surety (and can compensate the obligee in case a contract is violated) is referred to as a bonded business. A bonded business is able to offer a guarantee to its customers that it will do a good job. Otherwise, it will have to compensate the customer for any damages incurred. This is important because bonded businesses are viewed as being more dependable, reliable and professional.
Industries where bonding is important
There are multiple industries where surety bonds are important in facilitating everyday transactions between businesses. Some of these industries include:
Construction Bonds – In the construction industry, surety bonds are important for both the bond carrier and the principal. For bond carrier, a bonded contractor provides security against a job that is poorly done or negligence on the part of the contractor.
During a construction job, the owner of the project (the bond holeder) faces many different risks. Accidents can occur on his/her property and cause the owner to be liable for damages. In addition, the contractor may perform a sub-standard job and cause the owner of the project to incur costly damages.
To protect the owner against these risks, contractors often issue a contractor bond to the bond holder. This bond provides an assurance that the bond holder will be compensated in case the principal doesn’t adhere to the contract. In fact, most public construction projects require contractors working on those projects to issue a $150,000 bond.
Licensing Bonds – Most industries that require you to be licensed by the state before you can carry your profession often require surety bonds. Motor vehicle dealers, electricians, mortgage brokers, plumbers, private investigators, etc. are required to obtain a surety bond that protects their clients against damages incurred due to negligence on the part of the licensee.
NFP Surety only bonds with highly rated carriers, such as Travelers, RLI Surety, Liberty Surety, Suretec, and more. Too many to list. We’ll get you bonded for the correct amount, and on the correct paper!
Benefits of being bonded
What does it mean to be bonded in business? It means multiple benefits for your business. Bonded businesses are able to enjoy the following benefits:
Stability – A bonded business is able to enjoy stable operations. This is because when a contract with a customer is in dispute, or in case the bonded business does not do a satisfactory job, the bond acts as an extension of credit that the business can use to compensate the customer. The business therefore enjoys a layer of protection against costly claims that would otherwise paralyze the operations of the business.
More customers – Customers like to have a level of assurance that they will receive quality services from a business. A surety bond provides that assurance because they can make a claim against the bond in case the business is negligent in any way. Customers therefore trust bonded businesses more than those that are not bonded.
How to obtain a surety bond
Need to get bonded for your business? NFP surety can help. We issue many different types of bonds that are suited for multiple industries. Our application process is also quick and easy, and we can work with you to help you get bonded in the most appropriate way for your business. Contact NFP Surety today.