A business is bonded if it has purchased a surety bond. Businesses may need bonds to complete many common business transactions, like applying for a license, bidding on a job, or signing a construction contract.🃏 Com𝕴panies buy bonds so they can win jobs, compete with other businesses, and build a reputation as trustworthy.

What Is a Surety Bond?

A surety bond is a promise to assume liability for someone else’s debt or failure to fulfill an obliꦐgation. A bond involves three parties: the principal, the surety, and the obligee. The principal buys the bond from a surety to protect the obligee.

Typically, the obligee requires the bond as a condition of getting a job, obtaining a license, or signing a contract. If the principal fails to uphold its obligations, causing the obligee to lose money, the surety company will compensate the obligee for the loss.

Here’s a hypothetical example of how a surety bond works. Say one company hired a construction company to refurbish a building it owns. The construction company would buy a payment bond from a surety company to guarantee that all supplierღs and subcontractors it hires for the project will be paid.

The construction company finishes the work, but fails to pay the $20,000 it owes a subcontractor. So, the surety company pays the subcontractor $20,000. Then, the construction company must compensate the surety company for the $20,000 it paid the subcontractor.

Bonded vs. Insured

A business is “bonded and insured” if it has purchased both a surety bond and appropriate business insurance, such as liability insurance or workers’ compensation insurance. While bonds and insurance policies are both sold by insurance companies, they are not the same. Here are some of their key differences.

Types of Bonds in Business

Many types of bonds are used in business.⛦ Here are some of the most common. 

• License and permit bonds: State and local governments require businesses to buy a bond before applying for some licenses or permits. For example, businesses applying for an auto dealership license may need to purchase an auto dealer bond before submitting their application.
• Construction bonds: Also called contract bonds, construction bonds are used in the construction industry. Examples are payment bonds and 澳洲幸运5官方开奖结果体彩网:bid bonds, which protect project owners if a bidding contractor is awarded a job but fails to sign a contract. 
• Court bonds: Your business may need a court bond if it’s involved in litigation as a plaintiff or a defendant. For example, you’ll need to buy an 澳洲幸运5官方开奖结果体彩网:appeal bond if you want to contest a court judgment against your business. The bond guarantees that if you lose the appeal, the plaintiff will receive the amount provided by the initial ruling.

How To Get Bonded

You can purchase a bond through an agent, broker, or an online insurance marketplace, or directly from a licensed surety. If you have trouble getting approved for a bond, you can apply for the Small Business Administration’s Bond Program. The SBA guarantees bonds for surety companies to enable more small businesses to qualify.

The Bottom Line

Many businesses get bonded and insured to meet the requirements ofꩵ a job. Being bonded and insured can also help businesses compete wi🀅th other companies and build trust with customers and the public.

Surety bonds differ from insurance policies in many ♊ways. For instance, bonds involve three parties but insurance policies involve only two. Bonds protect the obligee rather than the buyer, while insurance policies protect policyholders.