Three Things Entrepreneurs Need to Know about Surety Bonds
by Kevin Kaiser

Beginning a business is overwhelming, to say the least. Most small business owners have plenty of paperwork to complete and it’s easy to overlook key items you’ll need to conduct business legally, including a surety bond, which is a document designed to provide consumers and regulatory agencies some protection in the event of misconduct on the part of a business. Here are three things every entrepreneur needs to know about surety bonds.

1. Surety bonds could help your business. Consumers are becoming more and more savvy and making better business decisions these days. Advertising that your business is licensed and bonded will give you an edge over your competition, who may not choose to actively publicize this fact. Consumers recognize that choosing a licensed and bonded company not only ensures that they will be protected against fraud, but also that they will be working with a company eager to conduct business ethically and fairly.
2. Surety bonds are NOT a form of insurance. One critical mistake that many small business owners make is thinking that their surety bond provides or takes the place of insurance coverage. Nothing could be further from the truth. Surety bonds do not provide any compensation for damages the bonded company has sustained. Instead, bonds are considered a type of credit. If a consumer or other wronged party files a valid claim against the bond because of wrongdoing on the bonded company’s part, the surety bond company will provide restitution or compensation to the wronged party. However, the surety bond company then requests reimbursement in full from the bonded company.
3. Surety bonds are required by law. Surety bonds aren’t just a good idea, they’re necessary to maintain compliance with federal, state, and local law in many industries. If your business does not carry the proper bonds at all times, serious consequences (including fines and revocation of your business license) may result. For example, motor vehicle dealership surety bonds in California are required to be $50,000. If you run a car dealership in California and choose not to purchase a bond, your business may be fined or shut down.

While surety bonds are of critical importance to your business and your livelihood, they are reasonably easy to obtain and often very inexpensive. Contact your local bonding agent or find a reputable bonding company on the internet in order to purchase your bond right now. You’ll save time, hassle, and perhaps most importantly money by complying with state, federal, and local law.

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