From time to time a small business, especially those performing contracting services will be asked to bond his or her work in advance. In some states certain types of contractors are required to be bonded. What are surety bonds, how do you get one, and what does it do?

Simply put, a bond (sometimes referred to as a surety bond) is a third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. There are various types of bonds such as LICENSE, PERFORMANCE, BID, INDEMNITY & PAYMENT. A bond is a financial guarantee that you will honor a business contract. Frequently a customer will require that your company be bonded.

* A PERFORMANCE bond is a guarantee that you will perform work in accordance with the terms of a contract.

* A BID bond is a guarantee you will perform work if the bid is won by you.

* A LICENSE bond is required by some states for certain businesses. In some cases you pay the state directly rather than obtaining a bond.

* A PAYMENT bond promises you will pay all subcontractors and material providers utilized in the performance of a contract.

A bond is NOT an insurance policy. This is important to remember. A bond provides assurance that the contracted work will be satisfactorily completed only. For example your bond will not pay for property damage or personal injury resulting from your work. For this you need conventional insurance coverage.

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