Beneficial Aspects Of Surety Bond For Entrepreneurs

For a business to kick start, the owners need to struggle hard from the commencement stage to the level where the business turns on the profits’ stream. There may be many hindrances that might cause difficulties in the proper running operations of business. Such intricacies or more appropriately obscurities are related to legal mandatory obligations that have to be fulfilled for legitimate business working. Out of many, preeminent is the compulsory purchase of surety bond which is obligatory in many industrial businesses. Unfortunately, a large part of entrepreneurs’ community is unaware of this requisite condition.

Business professionals who are well acquainted with this vital aspect of doing business might ask question that why surety bond is needed for a business? To serve them with justifiable answers following are the essentials that might lead to satisfy their ambiguities.            

Mandatory by law

There are several industries that permit businesses by law if the owner of the company ensures the purchase of surety bond. This important step is essential to execute the regulations made by law in order to conduct a business in a particular industry. To acquire business license to start as a mortgage broker, auto dealer, or contractor, the person needs to ensure the acquisition of such bond. Lest, a business fails to accomplish such requirement might lead to revocation of license.

Obligatory financial safety

Surety bond is a contract that binds all the parties involved legally. There are always three parties in an agreement that are:

The principle: who is purchasing the bond; he can be a professional or business entity.

The obligee: usually a government agency acts as obilgee beside principal to require this bond.

The surety: a company or an agency who is offering the bond to sell is the surety. It can be an insurance firm or surety agency.

In case the contractual binding of all the three parties are making no sense to a new person then the following example will illustrate the situation clearly. For-example: if a circumstance occurs where the contractor who is involved in construction projects funded publicly and he left that project in the middle then the government organization will prosecute a claim against the professional bond. The contractor will have two conditions out of which he is bound to execute one stipulation. Either the contractor has to complete the unfinished venture or he will be liable to reimburse the funds as per written in the bond contract. In case the contractor does not implement any of the clauses then financial guarantee will go in loss.

High customer preference to bonded business

Adherence to surety bond will act as a competitive edge for your business to gather massive targeted customers. When promoting business offerings, mentioning of bond contract will click customer’s mind and will stimulate them to prefer the business. With this shielding feature, customer will get safeguarded legally against any unpleasant happening.

Low premium as compare to coverage

In determining the total cost on surety bond below mentioned factors are considered:

·         Personal investments

·         Credit score

·         Bond type

Surety bond costs around 1 to 3% premium on the total amount of bond like, if the bond ensures coverage of $10,000 then the premium will be $100 to $200 maximum.

For a novice, the processes may seem difficult but once a person gets aware with how the things will be workable, all the steps will be sorted out smoothly.