What Is a Business Bond?

As a contractor, you’ve probably come across the term “surety bond” and all its encompassing types. The most common types are bid bonds, performance bonds, and license and permit bonds. However, there’s another type of agreement that shows you’re well-equipped to take on projects with higher risks: business bonds.

This kind of surety bond or fidelity bond proves to clients that your business is dependable. It functions similarly to business insurance in that it’s a useful risk management tool to protect your company from financial loss and other liabilities.

Keep reading to learn how business bonds set you up for success!

Business Bonds vs. Commercial Insurance

Both independent contractors and companies can benefit from getting bonded and insured. However, those mean two very different things. Read more below to understand the differences between bonds and insurance.

Business Bonds

Generally, bonds act as a guarantee of a promise. If a contractor promises that they can finish a project within a given deadline but fails to do so, the bond guarantees compensation for the associated damages. The surety company assumes the financial responsibility, then you pay them back through your agreed-upon payment plan.

Some municipalities require companies to acquire surety bonds before they conduct business. However, the rules and regulations differ by province or territory.

Many project contracts—especially those that cost millions—also require businesses to get bonded before being awarded the rights. This is especially true when taking on contracts from the government at any level.

What is a bonded business? It’s one that can guarantee its clients that it’s capable of completing work in accordance with industry standards.

Commercial Insurance

While surety bonds protect the project owner from liabilities, commercial insurance protects your business from financial risks arising from unfortunate situations.

In this scenario, your insurance company assumes liability for damages and helps you pay for costs such as medical fees, legal fees, or repairs and replacements. The amount of coverage will depend on your business’s unique circumstances.

Some insurance policies are also needed before a business can legally conduct operations, such as worker compensation insurance or commercial general liability insurance. Speak to a broker to ensure your bases are covered.

Types of Business Bonds You Might Need

Becoming a bounded business benefits you and your clients.

Why? As we discussed, it’s because getting bonded shows project owners you’re reliable and capable of completing tasks on time. The process of obtaining bonds is tough, with your surety company thoroughly checking your financial background.

That said, you might be asked to obtain various bonds throughout the duration of a project. Some of the most common business bonds you may come across include:

Bid Bond

A bid bond in construction acts as a guarantee that the winning bidder will uphold the contract according to its terms. If the bidder fails to proceed with the project, the bid bond will compensate the project owner for financial losses.

Business Service Bond

Similar to fidelity bonds, this type protects your finances against employees who may engage in dishonest or illegal conduct while working on a project site.

Here’s an example: you run a cleaning service business and one of your staff members is found guilty of stealing from the home of a client. Your business service bond will recompense the client for the value that was stolen.

Construction Bond

Construction bonds are exclusively used in construction projects. They’re designed to protect the project owner against business interruptions or financial strain arising from the contractor’s inability to complete the project or meet its required stipulations.

Contract Bond

Contract bonds serve as a guarantee that the terms of a contract will be fulfilled. If the contractor fails to uphold their duties as agreed upon in the contract, the project owner can file a claim against the surety bond for losses.

Performance Bond

A performance bond for contractors guarantees the completion of a project as per the agreed-upon stipulations of the contract, deadline, and budget.

Payment Bond

This is a type of bond that guarantees all subcontractors, suppliers, vendors, and other parties involved in the project will be paid in full for their services.

Do You Need to Be Bonded and Insured?

The short answer is yes.

While it’s good to have some type of business insurance that covers lawsuits as part of your risk-management strategy, you’ll also need surety bonds if you want to partake in projects that yield higher rewards.

In particular, becoming a bonded business makes your company look more credible and boost client confidence. This, in turn, helps attract more clients to your enterprise and opens up more opportunities for you in the future.

Why Choose KASE Insurance?

So, what is a business bond? The best answer is that it’s a legal agreement that helps you cover all your bases. Bonded businesses are protected from any potential losses!

KASE Insurance is a top provider of business insurance and surety bonds in Canada. We specialize in providing customized insurance solutions to independent contractors, companies, and other professionals. With our customer-centric approach, we’ll make sure your underwriting process goes as smoothly as possible.

Contact us today for a quote to get started!