If you are starting a small contractor business then you need to know about surety bonds. One of the most common requirements for contractors is to post a surety bond when they get their license. However, most small business owners do not know much about surety bonds or the process of getting one. This is why you need to consider some tips before you start looking at the bonds.
Understand How Bonds Function
Before you start any bonding process you need to know what the difference is between insurance and a surety bond and www.floridagreenbuildinglaw.com has a great piece to help.. Unlike insurance, the bond will not actually protect your business. A surety bond is a tool which provides extra security to your customers.
The bond is a contract between your business, the authority which requires the bond and the surety underwriter. The provider of the bond will take the responsibility to back your business in front of the licensing boards. They will also offer compensation to any affected parties if you do not abide by state regulations depending on the amount of the bond.
Know The Difference Between Contractor License Bonds And Contract Bonds
In various circumstances, a contractor will be required to post different types of bonds. This is why you need to learn about the different bonds in advance. When you are getting your contractor’s license you will need to post a contractor license bond. The purpose of this bond is to provide security to your clients.
If you are looking to participate in private or public projects then you will need to get a contractor bond. This is a different bond which will be specific to the project you are working on. The bond is not linked to your license at all. Some of the contractor bonds that you might need to post include payment bonds, bid bonds and performance bonds.
Learn To Decrease Your Bond Cost
One of the biggest concerns for small businesses is the cost of getting bonded. The only way that you can reduce the price of your bond is to understand how the cost is set.
When you apply for the bond you need to provide surety through documentation of your financial situation. This will include your personal credit score, a breakdown of your business finances, a listing of assets and evidence of personal experience. The surety is measured on the level of risk that the bonding agent sees in your business.
If you have a credit score that is not perfect then you should work at improving this. This improvement will decrease the cost of the bond. You can also decrease the costs by accurately showing the value and strength of your business.
There are a number of tips that small businesses and new contractors need to know about surety bonds. These tips will help you understand the type of bond that you need to get and the costs of the bond. Reducing your bonding costs is important because if they are too high you might not be able to afford them.