Protect Your Business Surety Bonds

Protecting Your Business and Customers with Surety Bonds

by Kevin Kaiser on October 10, 2010 · 9 comments

While you’re probably starting a business to make money, you also want to take care of the people you’re doing business with. That’s where surety bonds come in.

Getting a surety bond for your new business helps make sure that you’re following all of the rules for your type of job. Surety bonds help protect your customers, too, since they work like insurance—although they offer a different type of protection.

Today, Kevin Kaiser from will tell you what they are and why you should have a surety bond to protect your business.

So what are surety bonds?

A surety bond is a contract between three people. When a business owner gets a surety bond, he or she makes a promise to follow the rules for their job and make good business decisions.

The business owner makes this promise to a person who usually works for the government. The government wants to make sure the business owner is good at running a business. The third person involved is called a surety, and this person backs up the business owner’s promise. If the business owner messes up somehow, the surety makes sure the business owner will make up for the mistakes—or else pay extra fines.

Who uses surety bonds?

A lot of different types of online professions utilize surety bonds to protect their customers. You wouldn’t want to buy a car from an online seller who is trying to cheat you out of money. Surety bonds can protect against this, so that if a car dealer takes advantage of a customer, he or she can get the money back.

The customer makes a claim on the bond, and the car dealer would have to use the bond to pay the customer back. (Dealers hope to avoid these situations.) Surety bonds work in this same basic way no matter the industry or specific job type they are used for.

Many new businesses owners take advantage of the employee theft bond, which can reimburse the owner if an employee should steal from the business. This is good for anyone employs others to manage online funds.

Why you need to know about surety bonds

All entrepreneurs and new businesses owners should know about all the great things surety bonds can do for a business. Entrepreneurs get surety bonds either because they have to or because they want to operate as a reliable business.

Federal, state, and local governments all have different laws that require people with certain jobs to get a surety bond. This is done to make sure that the owner operates the business legally and makes good decisions for the employees and customers.

For example, new online mortgage companies emerge every day. Even though such businesses operate exclusively online they still have to follow all applicable laws set by their local jurisdiction. This means they must meet all stipulations required to maintain a business license, and in many states this includes getting a surety bond.

How to get a surety bond

If you know what kind of business you want to start, make sure you follow all the rules before you open up. Knowing where you plan to open your business is a very important part of getting started because different places have different rules. For example, getting a Pennsylvania surety bond is a lot different than getting a California surety bond.

The best way to find out if you need a surety bond is by browsing online. Most states post their bonding requirements on their official government website. Or you can contact an insurance agent or surety agency directly and have them help you.

The bonding process for online businesses works the same. Getting a surety bond for your new business is a great way to prove that you intend to do a good job. For those starting a web development company, the financial guarantee of a surety bond assures potential clients of your work ethic and dedication.

Advertising your status as a bonded business on your website will give your new business additional credibility, enticing potential customers to work with you. With a surety bond, new clients can rest assured knowing your commitment to working with them.

After all, even Sam Wyly used a performance bond to start his path to becoming a billionaire.

Photo by: DigiMatt

If you want more advice on the legalities of your business, check out our free How to Start a Business Course. “Legal Mumbo Jumbo” (Module 4) is one of the most comprehensive legal guides on the net.


1 Bail Bonds October 11, 2010 at 11:01 am

A bond is a written agreement that usually provides for financial compensation in case the principal fails in their duties or promises. A Surety bond is a specialized type of insurance that is created whenever one party guarantees an obligation by another party.

The Obligee receives the Surety Bond and in most cases receives monetary compensation from the Surety Bond if the obligations are not met.

2 Nick Tart October 20, 2010 at 8:23 pm

Hmm… Had to read through that a few times. It’s no wonder not many people know what these are. Thanks for clearing it up!

3 Alex@Business Opportunities Expo October 12, 2010 at 6:47 am

Nice article Kevin and very informative. I didn’t know much about Surety Bonds and how they can be used in business. It appears that they are a good selling feature in a business – do you think it can increase the conversion rate of an ecommerce site if the webmaster provides this type of insurance? Alex Papa

4 Nick Tart October 20, 2010 at 8:19 pm

Hey Alex! I think the verdict is still out on increasing conversion rates. I never heard of them until Kevin emailed me. My guess is that the same is true for most of your customers. If they don’t know what they are, it’s probably not a factor in their purchasing decision. But if you can educate them, it might push them over the edge. What do you think?

5 eastlandgrl October 18, 2010 at 4:40 am

interesting, thanks

6 livelybrowsers October 19, 2010 at 12:38 pm

Thanks for good stuff

7 zerodtkjoe October 20, 2010 at 1:05 am

Thanks for the info

8 badmash October 22, 2010 at 11:48 pm

I just signed up to your blogs rss feed. Will you post more on this subject?

9 Nick Tart October 23, 2010 at 5:50 pm

Thanks, Badmash! Surety bonds is such a small topic. What else would you like to know?I’ll ask Kevin.

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