Surety bonds are grouped into several categories. Small businesses most often need or benefit from purchasing the types of bonds in these four broad categories: license and permit bonds, fidelity bonds, contract bonds, and commercial bonds. Learn more about each below to discover what bonds you may need for your business.
License & Permit Bonds
Many types of businesses are regulated at the state level through a licensing process. A business that must be licensed in one state may not require licensing in another. At the same time, some businesses that are not regulated at the state level must be licensed by certain municipalities in order to operate within those jurisdictions.
The list of occupations and professions requiring license and permit bonds is long and varied�from auctioneers and manicurists to funeral directors and plumbers.
License and permit bonds guarantee compliance with applicable laws, rules, and regulations, as spelled out in the terms of the bond. Violation of any of the bond terms can result in a claim being filed against the bond.
Fidelity Bonds: Safeguarding Your Business from Employee TheftFidelity Bonds
Fidelity bonds are not mandated by any government entity. Business owners purchase them voluntarily to protect themselves against financial losses due to the dishonesty of their employees. There are two main types of fidelity bonds that small business owners buy: business services bonds and employee dishonesty bonds.
Business Services Bonds
Business services bonds are purchased by business owners whose employees perform services in customers� homes or business premises. Janitorial and cleaning services, landscapers, pool cleaning companies, and painters are among the businesses that commonly buy these bonds. A customer whose property is stolen or damaged by an employee of a company that is covered by a business services bond can file a claim against the bond to receive compensation for the loss. This is perceived by prospective customers as a competitive advantage.
Employee Dishonesty Bonds
Employee dishonesty bonds protect business owners rather than customers. They reimburse business owners for losses due to theft, embezzlement, or other crimes committed by employees. In most cases, there must be a criminal charge or even a conviction before a claim can be filed against the bond.
Contract Bonds
Contract bonds, also referred to as performance bonds, are commonly required in the construction industry. This can be true whether the contractor is a sole proprietor or a large corporation. A contract bond serves as the contractor’s guarantee to complete the project in accordance with the contract terms and all applicable rules and regulations. Again, any violation of contract terms can result in a claim against the bond.
Commercial Bonds
States commonly require certain businesses that collect sales tax from customers to purchase a commercial bond. These bonds guarantee that those monies will be remitted to the appropriate state agency. Businesses involved in the sale of lottery tickets, alcohol, and tobacco are typically required to purchase commercial bonds.
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