Limited liability corporations (LLCs) help protect your personal assets from business crises, such as adverse legal judgments against the company. Prospective clients may worry, though, that your liability protection may compromise your interest in completing a job. In these instances, a surety bond can keep everyone feeling secure. The bond is a type of insurance that tells your client certain obligations will be fulfilled. If they aren't, the bond covers the costs associated with the project that would otherwise be losses.
Choose what to bond. Not all aspects of a business or transaction must be bonded in order to earn your client's trust. If your client has a specific aspect of an agreement it wants bonded, skip to Step 2. If you are offering the bond as a way of cinching the deal or expanding your business, determine what kind works best for your interests.
Bid bonds guarantee work will occur as bid. Performance bonds guarantee a certain action will occur. General or non-contract commercial bonds guarantee you will comply with all relevant regulations for your industry. Commercial bonds extend beyond the scope of any particular contract.
Compile underwriting documents. The cost of your bond is determined by several factors, some of which require professional assistance to quantify. Gather as much documentation about your business, or the transaction to be bonded, as you can. Include statements of corporate net worth, pay records to employees, subcontractors and vendors, bank references, and proof of relevant business relationships. Some underwriters or bond agents may also require personal documents.
Visit a surety bond agency. In consultation with a licensed agent, explain what you want to bond and show him or her all your records. The agent will offer the bond at a certain cost in consultation or after he or she has a chance to analyze everything. You may choose to compare several agencies before signing on with one.
Submit the payment for the bond. The agent will provide you with the appropriate papers for your clients.
Present the bond to your client(s). If you are bonding a bid, submit the bond and bid at the same time. For all other purposes, provide your client with a hard or electronic copy of the bond, including a bond number and contact information for the bond agent. If you are generally bonded, you may provide the bond when selling services or upon request.
Tips & Warnings
- Some states require bonding in certain instances or for certain business types. Check with a business attorney in your state if you are unsure of your bonding obligations.
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