This is a guest post written by Kevin Kaiser of Surety Bonds.com, where you can learn more about startups and surety bonds and read up on industry trends and updates at the Surety Bond Insider.
Entrepreneurs have a host of issues to contend with on the path to starting their new business, from licenses and legal matters to funding and finance.
It’s easy for some things to get lost amid the bustle. But today, more than ever before, surety bonds are becoming one of those can’t-forget items on the entrepreneur’s checklist.
In fact, they can make or break some businesses in an era of increased consumer demand for financial security and guarantees.
What are Surety Bonds?
Surety bonds are risk-mitigation tools that are easily confused with insurance. But they’re more like a form of credit. Depending on your industry, you may be required to post a surety bond with your state in order to receive a license. Some of these business types include notary publics, auto dealers, mortgage brokers and travel agents.
In essence, these three-party guarantees provide consumers with an avenue for financial relief if you fail to follow all applicable laws and wind up harming people.
Even when they’re not mandatory, surety bonds can play a key role for emerging businesses.
Why They Matter
Surety bonds can easily set you apart from competitors. It doesn’t take much to walk your neighborhood with a snow shovel and a “Driveways for $20” sign. But entrepreneurs who go the extra mile and get their business properly bonded give prospective customers a greater degree of security.
Bonding says a lot about your professional attitude, your financial standing and your commitment to ensuring your customers are well served. Plus, you can feel confident in stamping the phrase “Licensed & Bonded” on your business cards and advertising materials.
Companies can also insulate themselves against financial harm by purchasing surety bonds. Employee Theft Bonds protect companies in the event their workers engage in stealing anything from physical items to intellectual property.
How to Get Them
Insurance companies and surety firms issue bonds using an underwriting process that’s somewhat similar to what you would expect when applying for a loan. Surety underwriters examine your financial background, credit, management history and other key indicators when considering a bond application.
Entrepreneurs can sometimes get stuck with more expensive bond rates because they don’t possess a track record or the necessary credit standing.
Generally, premiums vary from 1 to 3 percent of the total bond amount. But that can change depending on the applicant’s finances and credit and the type of bond sought. Applicants with less-than-stellar credit may wind up having to purchase a high-risk bond, which also costs more.
Rates change depending on the carrier, so entrepreneurs should shop around for the best terms possible.
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