Is a Surety Bond Required For Your New Business?

There are many steps to starting a business, including getting it registered by filing all the necessary documentation. Sometimes, one of the steps to starting and maintaining a business is a surety bond. This article discusses the different types of professions, businesses, and industries that may require surety bonds.

What Is a Surety Bond?

A surety bond is a three-party agreement between the principal (business owner), the obligee (entity requiring the bond), and the surety company. The bond serves as a form of security, enforced by obligees to guarantee there is reimbursement available should a principal cause financial harm to a person or entity.

If the person or business fails to abide by city, county, and/or state laws, a claim can be filed against the surety bond, which will be paid out by the surety company to the person or entity that experienced a financial loss due to the business.

When Is a Surety Bond Required?

There are several circumstances in business, when a surety bond is required. Here is the most most co

You’re getting a business license, registration, or certification

There are certain industries that require business owners to have a surety bond to get their business license.

Common license bond types:

  • Auto Dealer Bond
  • Contractor License Bond
  • Mortgage Lender/Broker Bond
  • Money Transmitter Bond

The purpose of these bonds is to ensure that businesses operate in an ethical and legal manner after being granted a license in the city, county, or state they are working in. 

You’re starting a project

Many large construction projects require the licensed contractor to hold a bond to ensure everythig is completed according to the project plan. Keep in mind this may be in addition to a city, county, or state-required contractor license bond. There are a few types of contract/project-based bonds:

Bid Bond

When a new construction project begins, a bidding process is opened up to contracting businesses. A bid bond may be required, which holds the contractor accountable to enter into a contract should they win the project.

Payment Bond

Payment bonds guarantee that materials and labor are paid for as agreed upon in the contract.

Performance Bond/Contract Bond

Utilized to ensure that the project stays on track, within budget, and otherwise follows the contract.

You want extra protection for your business

A fidelity bond may be considered to protect your business from fraud, theft, embezzlement, and financial loss. Here are the main types of fidelity bonds:

Business Services Bond/Janitorial Bond

This fidelity bond protects your clients if your employee steals from them. These are commonly used in the cleaning service industry where there are people working directly in the clients’ homes.

Employee Dishonesty Bond

If you’re worried about employees committing theft or embezzlement, this bond will afford you the protection you’re looking for.


An ERISA (Employment Retirement Income Security Act) Bond is required by federal law for those managing retirement and health plans. The bond’s intent is to protect your employees from any chance your business mishandles funds.

Financial Institution Bond

Although called a bond, this is actually more of an insurance policy that protects financial institutions (such as banks) against loss caused by employee theft, embezzlement, etc.

How to Obtain a Surety Bond

First, it’s important to know what’s required of your business. When you know which surety bond(s) you need, find a reliable surety company and fill out a bond application. Once you’re approved for a rate and have provided payment, your bond must be filed with the obligee. Each obligee has different requirements, including electronic filing via a website/portal, an emailed copy of the bond, or the original signed and sealed bond (most common).

Most bonds are renewed on an annual basis, but some surety companies allow you to purchase multi-year terms. Keep track of your bond renewal date to make sure there’s no lapse in coverage!

Other Bond Types, Not for Businesses

Sometimes a bond is required in short-term situations and/or times when the applicant is not running a business. A couple of examples include court bonds and lost title bonds. A court bond might be relevant if the business is in civil court or going through probate to ensure there is payment for legal fees and/or completion of fiduciary tasks. A lost title bond is an alternate way for you to prove your ownership of the used motor vehicle. The surety bond also ensures that the governing DMV will not be held liable for any unknowingly lost or stolen vehicles, and should the rightful owner of the vehicle come forward, the bond may be used as a means of restitution for the loss of their property. These are just a few examples, but there are over 9,000 surety bond requirements nationwide.

“Maggie Accardo is a lead content creator for Jet Insurance Company. With a passion for learning new skills and helping others, Maggie’s niche is in writing original articles and creating infographics for the surety industry.”

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About Collaborative Post is happy to provide guest posting opportunities for small business owners. This article was created by one of our contributors.

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