Bonds and Insurance for Small Business

Bonds and small business insurance are two ways to help you manage risk and protect against financial losses.

Bonds are required in a variety of business and court situations, including:

License and permits
Public officials
Tax bands on fuel
Cigarettes and alcohol
Utility deposits
Lost securities
Fiduciary
Judicial bonds

Business insurance for small business owners helps protect your company from different risks that can come up during normal operations.

Bond and insurance for small business may not seem like two related things, but they play a pivotal role in the success of small businesses.

What Is Bond Insurance for a Business?

In some industries, clients may require surety bonds before they agree to work with your business. Surety bonds protect the client because it guarantees that your business will honestly and faithfully perform all of its duties and comply with the law. If there’s an issue, the client can file a claim with the surety to cover the costs to fix the problem. If this happens, the surety will require reimbursement from your business.

What Does 'Insured' Mean for a Small Business?

An “insured” small business means it has coverage to protect against certain claims and risks. Different insurance policies protect businesses against financial losses and lawsuits. There’s not a one-size-fits-all insurance policy, so businesses buy multiple policies to protect against various claims. This includes:

General liability insurance, which helps protect against claims that your business caused bodily injury or property damage to others.
Workers’ compensation insurance to help your employees recover from a work-related injury or illness.
Professional liability insurance to help protect your business against claims that it made a mistake in the professional services given to a client.
Commercial property insurance, which helps protect the owned or rented building, equipment and tools you use to operate.
Commercial auto insurance to help protect you and your employees on the road if you use business-owned vehicles for work.

Small businesses like yours can obtener una cotización for these types of coverage to see how they can protect your company.

What Does 'Bonded' Mean for a Small Business?

A “bonded” small business means it purchased a surety bond. When it comes to bonds, there are three parties involved:

Surety: The insurance company issuing the bond
Obligee: The party requiring the bond
Principal: The purchaser of the bond

Bonds guarantee a business will complete the work as agreed upon in a contract. Bonds cover against incomplete work. So, if a company doesn’t act honestly or perform as defined in a contract or court document, the client can file a claim with the surety.

Businesses may get bonds because it:

Can protect your small business’ reputation if something goes wrong with your client
Helps meet legal requirements to do business or perform a role
Shows your business is financially stable and can perform according to the contract

Do I Need To Be Bonded, Insured or Both?

Whether your small business needs to be bonded, insured or both depends on the situation. States may require small businesses to carry certain types of insurance coverage. For example, most states require employers to have workers’ compensation insurance.

States or local law may also require businesses to have license and permit bonds as a condition to get a license to do certain business activities that can create a risk to the public. License and permit bonds require businesses to comply with specific statutes or regulations.

Four Categories of License and Permit Bonds

There are four categories of license and permit bonds:

Compliance bonds guarantee that a company will do its business in accordance with the law. For example, a municipality requires plumbers to comply with local building codes.
Public safety bonds are also known as indemnity bonds. They protect the public from financial loss due to physical damage. For example, some states require certain businesses to post road bonds in case heavy or oversized loads cause road damage.
Public protection bonds, or good faith and credit, protect the public from financial loss due to fraud or unfair dealings. Two examples of this are mortgage broker bonds and consumer lender bonds.
Financial guarantee bonds guarantee the payment of taxes or fees. For example, fuel tax bonds guarantee the payment of fuel taxes, which are a state requirement.

When Do Small Businesses Need Bonds?

There are a few different scenarios when small businesses need bonds. This can include:

Fulfilling a client or government contract: Clients, governments or municipalities can require businesses to get a bond to guarantee the work your business does.
Legally conducting business in a profession: Certain industries and types of work need to have a bond.
Assuring clients your business is reliable: Getting a bond from a surety company shows clients your business guarantees to operate according to an agreed upon contract and comply with laws and regulations.

Companies may need a business license and permit bonds, such as:

Contractor’s license
DOT permit, erosion and sediment control
Retail and professional services

Other types of businesses that may need a bond include:

Tax collectors
Treasurers
Notaries

Examples of Small Businesses That May Need Bonds

There are different types of surety bonds that a small business can get. This depends on the type of work done and what industry the small business is in.

Cleaning Businesses May Need Janitorial Bonds

Cleaning businesses may need a janitorial bond to help protect customers against employee theft. Cleaners that can benefit from this bond include:

Housekeepers
Commercial residential cleaning companies
Residential cleaners

Contractors and Construction Businesses May Need License and Permit Bonds

Construction companies may need license and permit bonds before starting a job. It shows that the business agreed to regulations and requirements of the government, such as building codes.

Be aware that not every insurance company is the same and coverage offerings can differ.

IT Businesses May Need Fidelity Bonds

Similar to cleaning businesses and janitorial bonds, IT businesses may need fidelity bonds. It protects businesses against IT-specific risks, like employee theft or illegal trading.

How Much Does It Cost To Bond and Insure a Small Business?

The cost to bond and insure a small business varies. When it comes to bonds, the cost can depend on different factors, such as:

The type of industry your business is in
The total value of the bond
Type of bond
Credit score
Financial history

Several factors can also impact your insurance cost, such as:

Industria
Number of employees
Claims history – you can request an insurance loss run to view your history
Policy details, like limits and deductible amounts

Since every business has unique needs, the best way to find out your insurance cost is to obtener una cotización.

Learn More About Bonds and Insurance for Small Business

We know every small business isn’t the same and has different needs. Our specialists are here to help you get the answers and coverage you need. If you’re wondering about business bonds and insurance for small business, we can help.

Get a quote today and see how we can help you get the small business insurance coverage you need.