Does my startup business need a surety bond?
Startups are always looking for ways to save money, but when it comes to running a small business, there is one thing that just doesn’t have any room for compromise: insurance. A surety bond is often required by lenders or suppliers of goods and services. If your company has less than six months in operation, you may not need a surety bond.
A surety bond is essentially an insurance policy taken out by the principal (the person seeking coverage). It guarantees payment to contract beneficiaries if certain terms aren’t met while performing under said contract. These bonds guarantee a certain level of trust between the principal and his or her clients. In this case, it is an agreement that your company will pay its debts as they become due to the surety under the terms stated in your contract.
In essence, it’s a sign of credibility from your business. shows that there are over 2 million active surety bonds issued every year in the US, with a total value exceeding $1 trillion. While individual states have different requirements for obtaining a bond, there are certain guidelines set forth by The American Association of Surety Bond Producers (ASBP) which should be followed during the application process.
What type of business needs surety bonds?
The most common types of businesses that need surety bonds are: -Contractors: including general contractors, home improvement contractors, roofing contractors, electrical contractors, pest control services, and more. Many lenders require these businesses to have a $15,000 bond or more for certain projects.
-Manufacturers: typically the larger the project the higher the bond amount needed. Lenders will call for an EPL (Endorsement Proposal Letter) with your application to determine if bonded manufacturing is right for them.
-Agriculture-Farmers: livestock breeders often file claims against farmers who don’t deliver goods on time. Crop insurance also includes coverage of “contract growers” as well as livestock producers.
-Mining: miners who lease land from the State of Nevada must purchase a $15,000 surety bond within 90 days of signing their contract.
What happens if I don’t have a surety bond?
Lenders and suppliers will typically turn down your application for coverage unless you can provide proof that you’ve obtained a small business and contractor’s surety bond.
Some companies still think they don’t need to obtain one, but the fact is that this security measure keeps both parties safe during transactions or contracts with clients. It also prevents costly lawsuits which could bankrupt your business. If you do not secure one before entering into an agreement with any company, prepare to fight!
Do all businesses need to be bonded?
Most lenders and suppliers only require the bonding of certain types of businesses. If you don’t meet their requirements, you can still take out a surety bond with us to provide proof that your business is in good standing. We offer all types of surety bonds for small businesses including -Contract Surety Bond (contractors) -Manufacturers Bond (manufacturers).
What type of costs will I incur when obtaining a surety bond?
The cost varies according to industry and size of the premium rate, but on average it’s less than 0.5% per year premium rate based on the amount needed. This sounds like a significant figure and it can be! But in comparison to other insurance policies, this is one way to ensure your company’s credibility with other businesses.
Why would my business need to be bonded?
There are a number of reasons why you should consider obtaining a surety bond depending on your industry. As previously mentioned, it can be seen as a type of insurance that helps both parties in the event that someone has been damaged due to bad business practices. In general, this could include:
-Businesses who want to enter into contracts with suppliers and/or lenders will need a contract surety bond which guarantees they’ll go through with the terms stated within their contract.
-Companies who manufacture products or produce services must have a manufacturer’s bond from a licensed agent for their first-tier supplier, distributor, manufacturer’s representative, and/or customer(s).
So if you’re not properly bonded your business might run into legal problems when entering into an agreement with a third party. Security bonds will help serve as protection and reduce the risk of business liability.
Are there any alternatives to paying for a surety bond?
Yes! You can check with local banks or lenders, but you might be required to pay hefty upfront premiums or monthly fees during your contract term depending on the amount needed. This is where we come in.
At Alpha Surety Bonds, we offer all types of security bonds at affordable prices for both customers and suppliers who want to work with bonded businesses and contractors. We use customer and supplier feedback as our main tool for screening applicants which means that you’ll only fall into one of these categories if you’re truly capable of performing your duties as stated in your contract.