Most of the time, bonding gets confused with insurance. But the truth is, they do not mean the same thing, although they might serve similar purposes. Whereas insurance protects you and your business against losses and damages suffered from unfortunate and unpredictable experiences, bonding is designed to protect your customers.
Let’s assume that a company has engaged your services as a janitorial contractor, and in the process of carrying out your duties one day, you or one of your staff mistakenly destroys something—something very costly. With your bond, damages like this can easily be taken care of without affecting your own business profits or income and without the customer having to suffer from the consequences of your actions.
Bonds are usually designed for small businesses like construction companies, IT companies, security outfits, government contractors and some popular types of bonds include:
- Surety bonds-: Surety Bonds are purchased by a company/contractor who is hired to do a job on behalf of his client who has hired him for the job. In a surety bond contract, the contractor is known as the principle while the client is known as the obligee. So, the principle purchases a surety bond to protect the obligee from damages or losses that may occur during the course of carrying out the contract.
- Commercial bonds-: Some businesses are required by law to have some bonds before they can be given the license to operate. This is mostly due to the nature of such businesses. Some businesses that require such bonds include debt collection agencies, health outfits like gyms and health clubs, and travel agencies, to mention a few. The government requires that such businesses have these bonds for various reasons—to ensure that unscrupulous people are kept out of the business and to prevent consumer frauds.
- Tax bonds-: These are mainly used to lift tax liens placed on businesses when the company doesn’t have sufficient funds to pay its tax debts. The IRS would accept the bond and then lift the lien within a few days, usually within 30 days.
- Fidelity bonds-: These are for businesses with employees. They are designed to protect employers against the activities of their employees like embezzlement, frauds, thefts, and damages. If the damages that result from the employees’ activities is suffered by the employer, then the employer would be reimbursed but if a customer suffers loss instead, then the customer would be the beneficiary of the bond.
How to Obtain Bonds for Your Small Business
1. List all services rendered by your company-: Bonds are obtained based on services rendered. Therefore, the first step to take when trying to obtain bonds for your business is to make a list of all the services that you render as well as all the things that could possibly go wrong in the process of carrying out such services. If you have many employees, for instance, you already know that you are at risk of embezzlement or fraud, so you need a fidelity bond. If you are a contractor, then you would need commercial bonds and so on.
2. Scout around for bonding companies-: I already mentioned earlier that bonding is different from insurance. So, to obtain a bond, you should search for a bonding company and not an insurance company. There are companies that specialize in offering bonding services, and these are the companies you should seek out for. Look for a very reputable one and find out more about their services either by booking an appointment or over the phone. However, some insurance companies also offer bonding services. Find out if your insurance company does.
3. Choose an agent-: Just as you need an agent for your insurance contracts, you also need a very good agent when you want to obtain bonds for your business. An agent can help you find the best deals and give you professional advice on how to get the best out of your bonding contract. You can get good agents by asking for referrals from other people in the industry; they would be able to refer you to a very good agent that they might have worked with and gotten satisfactory results from.
4. Submit requested information-: To determine your premiums, the bond issuing company would request some details about yourself or your business. Such details may include your name, details of your business, age and social security number.
5. Obtain bonding certificate-: Once you have entered into a contract with the bonding company, you would be offered a bonding certificate that you can show to your clients as proof that your company is bonded.
6. Pay premiums-: Ensure that you are always up-to-date on your premium payments.