License and permit bonds

License bonds and permit bonds are common in the construction industry, where they are often required to get licensed or perform certain types of work.

For example, let's say a general contractor opens up shop. First, they need a license to legally conduct business in their state. The requirements for a license may include:

• An age requirement, such as 18 or older
• Several years of experience in the field
• A contractor bond in a certain amount

The general contractor buys a $15,000 contractor license bond from a surety company. Once they show proof of the bond and pass the exam, they're granted a license to begin work.

In the future, the general contractor may need a permit bond to take on a construction project that requires excavation work, plumbing, electrical wiring, or a building permit. These requirements vary by municipality, so make sure to research the laws in your city and county as well.

Contractors often need other kinds of bonds as well. For instance, you might need a bid bond to bid on a project, a payment bond to guarantee all parties involved in a project will be paid, or a contract bond to sign a contract with a client (also called a performance bond).

Cleaning businesses typically need a license to comply with the laws in their state, county, or city. Sometimes it's necessary to secure a bond in order to get your license. You'll need to check the laws in your area to find out exactly what you need to start a cleaning business.

Additionally, your clients may require you to carry a janitorial bond before they will allow your workers on their premises. If one of your employees steals from a client, this type of bond will reimburse the client for the amount that was stolen.

Insurance agents and brokers need a license to sell insurance, and can face severe penalties for failing to obtain one. As with other professions, they often need a bond in order to get their license. The requirements for licensure can include:

• A bond in a specific amount
• Courses
• A test
• A filing fee
• A background check

In addition to helping you comply with state laws, a bond protects your clients from unethical practices committed by your business, such as selling unnecessary products or manipulating prices. Clients are more likely to work with a bonded insurance broker or agent, as they know their assets are protected.

Depending on their specialty, consultants may need to carry a business license, and obtain a bond to get licensed. Even when it's not necessary, a bond reassures clients that your business is legitimate and could give you an edge over competitors.

Additionally, clients often require consultants to carry a fidelity bond, especially if you work in finance or information technology. A fidelity bond repays the client if an employee at your business steals from them via an illegal funds transfer or other methods.

Both license bonds and permit bonds are common in the landscaping industry.

Landscapers typically need a license bond in order to obtain their landscaping license, and then permit bonds depending on the specifics of a project. In general, whenever you apply for a work permit, it's likely that you need a permit bond as well.

For instance, you may need a bond for:

• Any work that disturbs a certain square footage of ground or changes the grade
• Installing a swimming pool
• Building a retaining wall or fence of a certain height
• Tree removal
• Pesticide application

You'll need to research your state, county, and municipal laws to find out when you need a license, permit, or related bond.

Bonds are a necessary part of doing business. Many professions have bond requirements in order to conduct business legally. You might need one to comply with state licensing laws or to get a work permit for a project.

Bonds show clients you are reliable. Bonding companies evaluate your credit history before issuing a bond, so it helps prove your business is dependable. Your clients also get peace of mind knowing they'll be reimbursed if something goes wrong.

You can take on bigger projects. Small businesses that are bonded and insured can take on government projects and work with larger clients that require certain types of insurance coverage or bonds.

Bonds help attract new clients. Clients may choose to work with a bonded contractor or subcontractor over one without this coverage, so it can give your business a competitive edge.

License and permit bonds always involve three parties:

• The principal (your business)
• The obligee (your client)
• The surety (the insurance company)

License and permit bonds are different from small business insurance policies, which pay out claims to the policyholder. Instead, bond claims are paid to the regulatory agency or client that requested the bond.

If your business fails to comply with regulations or other terms of the bond, then the insurance company provides reimbursement. Your business is responsible for eventually paying this amount back to the insurance company.