While starting a business may be everyone’s dream, it is not as easy as it sounds. You need to surpass various hurdles and jump through hoops to start running a business. One of the most important aspects of owning a business is getting a license or permit. But even before you can get your license, you will need to get a license bond. License Bonds are a special type of commercial surety bond. Read on to learn what purpose they serve and whether your business needs them.
Understanding License Bonds: Do You Need Them?
License Bonds are used for the protection of the consumers. This type of bond ensures that a business will follow all the rules and regulations specified for it. If a company fails to follow the protocol set out for it, consumers can protect themselves by claiming the business’s License Bond. Unlike a Fidelity Bond, this bond is not used to protect the business, but the consumers.
When businesses follow the industry laws and regulations, nothing happens to their bond. However, if the company fails to fulfill its duties as per the law, consumers claim the license bond. When the business is at fault, the commercial surety bond provider will need to pay a consumer’s settlement amount. Ultimately, the business will be responsible for repaying the settlement amount to the surety company.
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A Guide to License Bonds: Everything You Need to Know
When starting your business, it is easy to get overwhelmed by the sheer number of things you will need to complete. Bonds can be complicated, but once you have a cheat sheet, they are easier to parse through. Before you buy a license bond, ensure that you keep the following things in mind:
- License Bonds Don’t Protect the Business: Although mentioned earlier, it is worth repeating that license bonds are not designed to protect the business. It is a surety bond that can protect the interests of a third party, in this case, the consumer. When companies want to protect themselves, a Fidelity Bond is required. These bonds protect a business from fraudulent acts committed by their employees and clients who may have been affected by these acts. Hence, Fidelity Bonds are quite crucial for businesses as well.
- Not Insurance Substitutes: While some insurance companies may offer other bonds, they are not substitutes for license bonds. To protect your business, it is still essential for you to have business insurance.
- No Bond? No License: While this may not be true for every business, in most places, business owners need to get a license bond to secure a license. Depending on where your business is located, it is worth looking into the laws and regulations as you may not be able to get a permit for your business if you do not have a license bond.
- Stay Updated: License Bonds are complicated, and the rules governing businesses are updated quite frequently. Depending on your industry, you may want to ensure that you are up to date on all of the protocols and regulations to ensure that no consumer has any grounds to claim your business. Staying up to date ensures that you are aware of any changes and can adapt your business accordingly.
- New Businesses Can Get Bonds Too: Many assume that to secure a bond for your business, you need to be a well-established company with an excellent track record of satisfying customers. However, even brand-new businesses can acquire license bonds with ease. When you go to the right surety company, you will be able to secure a license bond no matter your company’s age. Although, the bond prices may be higher for newer companies as they do not have a strong credit score. The older the company is, the lower the bond cost may be, although other factors come into play.
- The Business Owner’s Credit Score: When trying to secure a newly established company’s license bond, the business owner’s credit score matters greatly. With a new company, bonding costs can be high, but if the business owner has an excellent track record and a good credit score, the costs can reduce. Hence, when applying for a bond, keep your credit score in mind as well.
Before applying for a license bond, it is useful to look into the different bonds a company may need. Doing so helps you acquire your bonds from a single provider, making it a hassle-free process. But before you make any commitments, ensure that you have completed your research and are satisfied with your surety company.
