A business bond, also known as a commercial bond, is a legal contract to protect a business or its clients from loss. It is a financially-backed guarantee that professional obligations will be met.
What Do Bonds Do for Businesses?
Surety bonds can help businesses:
- Fulfill license and permit requirements
- Win contract work
- Build consumer trust
Professionals and businesses often need surety bonds to fulfill license and permit requirements, bid on contacted jobs and much more.
Business bonds can also boost a company’s reputation. Posting a surety bond proves your ability to fulfill contractual requirements and demonstrates financial stability.
What Does it Mean When a Business is Bonded?
Being bonded means that a business has purchased a surety bond, which insures customers against claims of dishonesty or unsatisfactory work. Surety bonds are three-party contracts between a principal, obligee and surety company.
Learn more about what it means to be bonded in our complete guide.
What's the Difference Between Business Bonds and Commercial Insurance?
While business bonds and commercial insurance both show trustworthiness and offer financial protection, they cover different things.
Business Bonds
Business bonds are a three-party agreement that protects clients or the public against financial harm resulting from things such as:
- Misconduct
- Employee fraud or theft
- Non-compliance with contract terms
- Failure to complete projects
Commercial Insurance
Insurance is a two-party agreement that protects the business from harm such as:
- Theft
- Financial loss
- Other operational risks
- Physical assets
Common Types of Business Bonds
Business bonds are used in various industries for different purposes. Key business bond types include contract, fidelity, license and permit, and commercial bonds.
Contract
Contract bonds are commonly used in the construction industry and guarantee project completion according to contract terms. The three primary contractor business bond types are bid, performance and payment bonds.
Fidelity
A fidelity bond is a form of insurance that protects policyholders from losses incurred by dishonest employees, volunteers or officers. These bonds are sometimes required by the federal, state or local government. However, some businesses get bonded voluntarily to boost their reputation or to meet a client’s contract terms.
License and Permit
License and permit bonds are required before a professional or business can obtain their license to work. These bonds help protect governments and consumers from fraudulent business practices as well as any damages or losses.
Commercial
Commercial bonds are often required to guarantee that businesses will handle funds appropriately, pay taxes, or fulfill other financial or legal obligations. These bonds refer to any surety bond required for a commercial business to operate.
How Much Does it Cost to Get a Business Bond?
Depending on the type of business bond you need, your cost may vary. Some bonds are available for instant issuance and have a flat, fixed rate.
Most business bonds undergo the underwriting process. This means the bond price will vary based on factors such as credit score and personal or professional qualifications. Highly qualified individuals can expect to pay 0.5–3% while others with lower credit may pay a higher premium.
To find a starting price for the bond you need, use our surety bond cost calculator.
