Starting a new business comes with a mound of paperwork. Business plans and structures need to be filed, and state and federal government agencies all need different documents. Even local city governments will require a variety of paperwork before they allow your business to open its doors. You will also have to file for a variety of permits and licenses, and in many states you will have to acquire a surety bond before even applying for these.
What is a Surety Bond?
A surety bond is a contract between an obligee, a principal, and a surety. The obligee is the recipient of an obligation, the principal is the party performing a contractual task, and the surety is a company that assures that the principal will be able to complete its task.
In business, surety bonds are most often used in the construction industry and when applying for permits and licenses. In the case of construction bonds, the project owner obtains a surety bond to ensure that the contractor will abide by the contract or be held liable. When seeking a surety bond for licenses and permits, a surety bond is secured by a business owner to ensure that it will follow the appropriate statutes, state laws, municipal ordinances, and other various local and state legislation pertaining to business.
Where Can I Obtain a Surety Bond?
Because nearly all businesses need surety bonds to begin operations, there are numerous storefront and online companies which provide surety bonds.
How Much Does a Surety Bond Cost?
A fee between 1 and 4 percent of the needed bond amount is usually charged for securing a surety bond. However, high risk applicants may pay between 5 and 20 percent of the total bond amount.
To make sure that your business will be properly covered, be sure to research which licenses and permits you will need before you secure a surety bond. Because not all states require surety bonds to secure licenses and permits, ask your state and local governments if surety bonds are even required to avoid unnecessary expenses.