Are You A New Business Owner Looking For A Surety Bond? Here Are Two Things To Consider Before You Buy

Most people starting a new business are often shocked to discover that securing a surety bond is a part of the process. Oftentimes, prior to a local governmental agency awarding a business with a license to operate, they will require the business to secure a surety bond, sometimes called a license bond. The primary purpose of this bond is to guarantee that your business will comply with all local regulations and laws once in operation. If you're a new business owner, here are two things to consider before securing your bond.

Research How Bonds Work

Before you begin the process of securing a surety bond, it's important that you take the time research exactly how these bonds work. The fact that surety bonds are generally underwritten by insurance agencies, leads some people to make the mistake of assuming they function like an insurance policy. However, this information is incorrect. In simpler terms, the bond is more or less a line of credit for which you are financially responsible for.

By purchasing a surety bond, you are entering into a contractual agreement that you will operate your business within the limits of the law for your particular business type. In the event of a violation, unlike an insurance policy, the insurance company will not be held financially liable, but you the business owner will assume all responsibility.

Understand Costs

The next thing you want to do is familiarize yourself with the cost structure for surety bonds. Similar to insurance policies, you will pay a premium for your bond. The cost of your premium is based on a number of different factors. The first consideration is the type of business you operate. Certain businesses come with a higher cost. For example, an individual looking to secure a bond for a small printing shop could expect to pay considerably less than someone looking to secure a bond for a restaurant that serves alcohol.

The higher the operational risk of the business, oftentimes, the more you can expect to pay. In some instances, your personal credit can also be a part of the formula for establishing a surety bond. Fortunately, a number of bond companies offer financing plans to help new business owners manage the cost of their surety bond premiums easier.

As a business owner, it's imperative that you are operating within the limits of the law. After you have familiarized yourself with the process, secure your security bond to ensure you are accomplishing this goal. Contact a company like NFP, P & C, Inc. for more information.