Countless industries across America utilize surety bonds to eliminate malpractice in the workplace, yet most business owners know little about how these insurance products work. As a woman who works in the surety industry, I've devised this list of 10 things every working woman should know about surety bonds. To make the information easier to consume, I've broken the information down into three categories.
Surety bond basics
1. A basic definition explains that surety bonds are legally binding contracts that guarantee a certain level of performance. When working professionals purchase surety bonds, they promise to follow certain laws and regulations or else face the consequences. As such, surety bond insurance discourages fraud and other forms of malpractice in the workplace.
2. Each surety bond that's issued joins three parties together into a legally binding contract. The obligee requires the bond to ensure a job is completed or a profession is held at a minimum standard. The principal purchases the bond to guarantee his or her ability to perform as expected. The surety provides a financial guarantee of the principal's ability to fulfill the bond.
3. The financial guarantees provided by surety bonds are typically used for two reasons: to reinforce industry regulations and to protect consumers and government entities from financial loss at the hands of working professionals. If a principal breaks a bond's terms, the harmed party can make a claim on the bond to recover losses.
4. Government agencies frequently require business owners, entrepreneurs and other working professionals to purchase surety bonds before they can apply for a surety bond. Since they're used as a part of the business license application process, these bonds are known as license and permit bonds. Thousands of unique surety bond types exist; they typically revolve around professionals that provide services directly to consumers who could be easily taken advantage of. Some examples include auto dealers, mortgage professionals, telemarketers and cleaning services.
5. Surety bond regulations vary greatly depending on the industry you work in and where you work. For example, the laws that require travel agents in California to get a surety bond vary from those that apply to tax collectors in Texas. The amount of bonding coverage you're required to get also varies based on your profession and location.
6. To determine whether you need a surety bond, you should check with the government agency that's in charge of licensing professionals in your industry. Most states have government websites that outline license and registration requirements on which you can find information on bonding expectations.
7. If required to purchase a surety bond, you must also maintain it according to law at all times. Surety bonds typically expire on an annual or biennial basis, so make sure you give yourself enough time to purchase a new one so you don't have a lapse in coverage. Failing to fulfill bonding regulations can result in penalty fines, license revocation and even legal action.
Benefits of surety bonds
8. Surety bonds reinforce industry integrity. Since the contractual language used in surety bonds requires working professionals to fulfill industry standards, you know that you're working in an industry that demands a certain level of work performance.
9. Surety bonds limit your competition. The surety bond application process is stringent. As such, not all applicants are able to qualify for surety bonds. When applications suggest a lack of financial credibility or professional work experience, business owners and working professionals struggle to get the surety bonds they need. When surety providers refuse to issue bonds to unqualified applicants, your competition is reduced.
10. Surety bonds reassure your clients that they're working with a credible business. You've probably seen or heard businesses that are marketed as being licensed and bonded. Consumers know that bonded companies do work that's backed with the financial guarantee of an insurance underwriter.
As a working woman, you have enough concerns on your plate when preparing to start and then manage a new business. With this basic understanding of surety bonds, you'll be better prepared to undergo the surety bond process if the need ever arises.
Danielle Rodabaugh is the chief editor of at SuretyBonds.com, a nationwide surety insurance company. Through its educational outreach program, SuretyBonds.com helps business professionals in an array of industries understand what surety bonds are and why government agencies require them.