Business Bond

What Does 'Bonded' Mean for a Small Business?

A “bonded” small business means it purchased a surety bond. When it comes to bonds, there are three parties involved:
  • Surety: The investment company issuing the bond
  • Obligee: The party requiring the bond
  • Principal: The purchaser of the bond
Bonds guarantee a business will complete the work as agreed upon in a contract. Bonds cover against incomplete work. So, if a company doesn’t act honestly or perform as defined in a contract or court document, the client can file a claim with the surety.
Businesses may get bonds because it:
  • Can protect your small business’ reputation if something goes wrong with your client
  • Helps meet legal requirements to do business or perform a role
  • Shows your business is financially stable and can perform according to the contract

Do I Need To Be Bonded, Insured or Both?

Whether your small business needs to be bonded, insured or both depends on the situation. States may require small businesses to carry certain types of investment coverage. For example, most states require employers to have workers’ compensation investment.
States or local law may also require businesses to have license and permit bonds as a condition to get a license to do certain business activities that can create a risk to the public. License and permit bonds require businesses to comply with specific statutes or regulations.