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Running your business comes with many rewards, but there are also plenty of risks to be aware of too. However, there are solutions available that reduce the financial risk and ensure your business can continue should the unexpected happen.
Two of those solutions are business insurance and bonding. Below, we’ll take a look at how to get business insurance and bonding, why you may need them, and what sort of businesses should consider having them in place.
What is bonding for small businesses?
One of the most common bonds for small businesses is a surety bond.
Surety bonds are put in place by small business owners to protect the business and its customers. While they’re not a legal requirement, a surety bond may be necessary in order to conduct certain types of business, acquire a licence, or join associations.
If you’re a small business, particularly one that is new and hasn’t yet built a reputation, it can be difficult finding customers. Surety bonds are a way of reassuring potential customers that you’re an honest business that is willing to uphold its duties. If you have a surety bond in place, and your business does encounter an issue that leads to you being unable to fulfil your obligations, then the customer can file a claim to recover their losses. This way, the surety bond reimburses the customer and not your business, which could potentially save you from an expensive and time-consuming legal issue.
Some businesses may require you to have a bond in place before they agree to work with you. This isn’t because of a lack of trust, but to protect their financial interests should the unexpected happen.
Other types of bonds
As well as a surety bond, which applies to a wide range of businesses, there are other bonds that are specific to certain industries.
- A licence bond or permit bond – required in order to be granted a licence or undertake a specific type of work. It guarantees the holder will comply with the laws and regulations required to undertake the work.
- A performance bond or contract bond – a type of surety bond in construction used to ensure work is completed to a satisfactory standard.
- Bid bond – used to protect a customer to ensure a company fulfils work following a successful bidding process.
- Payment bond – this protects all third parties involved in a project to ensure they receive payment.
- Supply bond – ensures all materials and supplies are fulfilled.
- Maintenance bond – protects the customer after the work has been completed.
- James Bond – a spy for the British secret service.
What are the differences between bonds and insurance?
A bond covers your customers, rather than your business. However, by extension, this covers your business as it ensures you don’t lose money in the event your business finds itself in a position where it can’t fulfil a contract. A bond helps establish your business as one that’s trustworthy and credible and makes you a more appealing choice for potential customers.
Insurance offers a far more comprehensive level of protection. Depending on the policy and the level of cover, insurance protects your business from loss and damage, as well as in the event a claim is made by a customer or member of the public.
Does your business need to be bonded, insured or both?
There’s only one type of insurance your business is required to have by law, which is employers’ liability insurance if you have more than one director, or any number of employees or volunteers working for you.
All other types of insurance aren’t a legal necessity – but are something you’re advised to have to cover you in the event a claim is raised. Without the relevant insurance in place, your business could face lengthy and expensive legal battles that can potentially cost millions.
For many businesses, bonds may also not be required. However, in certain industries, they are, such as businesses in finance, construction and maintenance.
Having both insurance and bonds in place covers your business for a wide range of scenarios, decreasing the risk that your business (and your customers) will take a heavy financial hit should something go wrong. It also increases confidence in your business and showcases to potential customers that you’re trustworthy and legitimate.
When bonding insurance might be right for you
As we’ve already highlighted, in certain industries it may be required that your business has the relevant bonding insurance in place in order to be able to operate. This includes businesses such as:
- Carpenters
- Contractors
- Construction companies
- Cleaners and janitors
- Electricians
- Estate agents
- Financial services
- Handyman services
- Home inspectors
- HVAC installers
- Insurance brokers
- Notaries public
- Painters and decorators
- Plumbers
- Roofers
- Tax services
Even if your business isn’t part of the above industries, bonding insurance may still be something you want to consider, particularly if your business intends on working with the government, such as, for example, local councils or schools. However, bonding insurance only covers you in very specific instances. While bonding insurance may not be something you think is worthwhile for your business, you should undoubtedly consider business insurance to protect the future of your business.
Get a quote for your small business with Protectivity
While bonding insurance may not be for everyone, business insurance certainly is. Protect your business with our small business insurance – get a free quote today.
Get Small Business Insurance from Protectivity
*Disclaimer – This blog has been created as general information and should not be taken as advice. Make sure you have the correct level of insurance for your requirements and always review policy documentation. Information is factually accurate at the time of publishing but may have become out of date.Â
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