3 Reasons Bonds Are Important for Your Small Business

Just getting the right insurance and licenses is the first step. You will need to have the right bonds to run a profitable business. What are small business bonds? Bonds are a guarantee that your small business will provide the services agreed upon.

Bonds and insurance can protect your business against being one of the 40% that go bankrupt after a disaster. Certainty bonds are necessary for many small businesses and protect customers. If a student at your hair salon reports that they did not receive services after they paid, they may file a claim to get reimbursement from your bond. You will need to reimburse the bond company.

Because they help protect your small business’ reputation, surety bonds can be a good choice. They guarantee that you will adhere to all applicable rules and regulations. You may also need to have the following types of bonds for your small business:

  • Fidelity bonds These bonds help to protect the finances of businesses in case of employee theft or fraud.
  • License bonds Many times, when you obtain business licenses to conduct business, you will also need bonds. A liquor tax bond is required if you want to get a license for a liquor business. The bond is a promise to pay your taxes.
  • Business Service Bond: This bond protects your customers if your employees steal from them. This bond is essential if your employees are regularly sent to work in a customer’s house.

Are you unsure if small business bonds are necessary?

These are the top three reasons your Small Business needs bonds.

  1. Most contracts require bonding

When clients work with you, surety bonds protect their investment in your small business. You should expect larger clients will require surety bonds. The legally binding contract you sign will state this requirement. Bonds and insurance are a way for your clients to know you’re trustworthy and reliable. Your clients can be assured that you won’t lose their money by having bonds in place.

For example, surety bonds reimburse your client if you don’t deliver your agreed-upon services. If you begin a landscaping project together with a client but don’t complete it, they can file a claim for compensation with their surety bond. This compensation can be used to hire another company. You will need to pay your bonding company for every claim against your bonds.

Surety bonds protect your customer’s investment in case of an emergency. This can help to keep your business in good standing. They can also prove that your small business has financial stability. Most government institutions will require bonds to work with you.

  1. Certain industries require bonds

Bonds are required for some small businesses to operate. In the restaurant service industry, for example, surety bonds may be required. Independent contractors such as plumbers also often require surety bonds.

These are just a few of the small businesses that will likely require bonds to continue their operations.

  • Personal services like hair salons, barbershops, and health clubs for patient care
  • Services such as collection agencies, real agents, and escrow officers
  • Private schools
  • Distributors, manufacturers, and retailers of alcohol
  • Notary publics
  • Construction companies

You will need other bonds to be able to operate your business, including surety bonds. There may be license or fidelity bonds, as well as small business insurance coverages such as workers’ compensation insurance. Every state has its insurance requirements. Before you decide on your insurance coverage, make sure to check the requirements for your specific area.


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  1. If you offer employee benefits, bonds are required

Chances are that you offer at least some benefits to your employees if you have them. Bonds are required to provide employee benefits, regardless of whether it is a 401(k), pension plan, or any other type. Employee Retirement Income Security Act (ERISA), states that bonds should be in place for every fiduciary and person responsible for managing funds or other assets of employee benefit plans.

If you offer employee benefits, ERISA requires you to have bond coverage of:

  • A minimum of 10% of plan assets must be handled.
  • For retirement plans that have company stock, a minimum of $1,000 and a maximum of $500,000 for either $1 million or $500,000

These bonds protect your plan participants from fraud, dishonesty, or theft. If plan participants are unable to receive benefits due to theft, they may file a claim against your bond and get compensation.

How do you get bonds for your business?

After you have decided to obtain bonds, the next step is to search for the right ones for your company. This can be done by working with an insurance company or a specialty bond company. Our specialists can help you determine the right bonds for your needs and what they will cost.

Several factors can affect how much you pay for your bonds.

  • Industry
  • Type of bond
  • Credit score
  • Financial history
  • The value of a bond

Small businesses can also get a surety program through the Small Business Administration (SBA). They will also help you to determine the type of bond you require.

Small businesses, whether they’re hair salons or a restaurant, have at least two things in common. They require insurance and bonds to ensure long-lasting success.

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