How to Get Bonded and Insured
Starting a small business can be extremely difficult. Beyond the financial difficulties involved, there is the fact that you’re an unknown name in a field where some people have been working to make names for themselves for years. Whether you’re a plumber, a housepainter, a dog sitter, or a caterer, you’re asking your customers to place a good deal of trust in you, a complete stranger.
One way to solve this problem is to get bonded. This will go a long way to prove to potential customers that you can be trusted. Getting bonded ensures that if you do not complete a job you’ve been contracted to do, or if one of your employees steals from or commits another criminal act against a customer, the bonding company will compensate that customer.
Getting bonded goes a long way towards giving potential customers the confidence to choose you over others. It’s definitely something you want to consider doing for your small business, especially during tough economic times, when people cling ever tighter to their purse strings. Potential customers might need that extra incentive to invest in you.
The process involved in getting bonded varies from location to location, but there are a few basic things to consider, wherever your business is located. Here are some things to keep in mind when considering how to get bonded.
Types of Bonds
A bond, sometimes called a surety, is a contract between at least three players: the obligee (your customer), the principal (that’s you) and the surety (the bonding company). When thinking about how to get bonded, remember that there are many types of bonds provided by bonding companies. You may only need particular ones depending on the type of your business and what’s required in your area.
Here are a few different types of bonds that you may want for your business.
Bid Bond: A bid bond is a surety bond issued when bidding on a particular job. It makes sure that the principal completes the job under the same terms with which they bid. These types of bonds are very common in construction work.
Performance Bond: A performance bond is a surety bond that guarantees the completion of a project to the obligee’s satisfaction. For example, this protects a customer from having contractors walk away from jobs that are half-completed, or that are completed using inferior materials. Plumbers, housepainters, electricians, or any other type of home improvement contractors commonly use these bonds.
License and Permit Bonds: This general class of surety bonds proves to potential customers that you’ve met the requirements of your city, county, or state to provide a service. Similar to a license to drive a car, you may want to get a bond of this type if you’re in the business of selling a particular type of product, such as real estate, or providing a specific service such as dog grooming or catering.
Indemnity Bonds: Indemnity Bonds ensure that you will reimburse your customer for any loss incurred by them if you do not complete your job properly (for example, if improperly installed plumbing then goes on to damage a homeowner’s carpets).
The first step in how to get bonded is figuring out which of these bonds you’ll need for your business.
The Bonding Process
Once you’ve decided on getting you or your small business bonded, you should contact a bonding company (which will most likely be an insurance company or a bank). Check your local yellow pages or look online for bonding service providers in your area.
An agent with the bonding company (usually an insurance company or a bank) will go over how to get bonded. They will inform you on what options are best for you and your type of business. They will also be familiar with the types of bonds that are required for doing your field of business in your area.
After consulting with the bonding company agent, you will have to be approved for the bond. You, your employees, and maybe even your spouse will undergo a rigorous series of background checks, including a criminal background check.
Some locations don’t allow anyone with any sort of criminal background to get bonded, but usually a minimal amount of criminal activity is acceptable. So, if you’re worried about the vandalism charges associated with a high-school prank (or something else along those lines) then you’re probably going to be okay.
The bonding company will also probably contact your previous employers, business associates, and perhaps even check your credit rating and financial status. After passing the background check processes, the bonding company agent will discuss with you the different options available, and set up your monthly premiums.
Alternatives to getting bonded
Getting bonded can be expensive, and if you or one of your employees (or even your spouse) has a checkered past it may not be feasible for you to pass the required background checks. You may want to explore your options before deciding on getting bonded.
One thing to keep in mind is that a bond is not the same as an insurance policy. Bonds will not pay for personal injury or property damage as a result of accident, so as a small business owner you’ll still want to invest in a good comprehensive insurance policy no matter how bonded you are.
Since you’ll be paying for this anyway, if it’s not required (and in tough financial times, every penny counts) worrying about how to get bonded on top of your insurance may not be worth it financially for you. As a small business owner, you may just want to get the best liability insurance instead. Discuss with your bond company agent what is best for you.
One possible alternative to getting bonded is to consider a fidelity bond. More like an insurance policy, a fidelity bond covers business owners for losses that they incur because of dishonest acts enacted by its employees. This is basically a kind of surety bond where you are the obligee and your employees are the principals.
This information should give you what you need to know about how to get bonded. Good luck!