When you are eyeing a project, especially a huge public one, chances are that you have heard of the word ‘bond’. This can either be a performance or payment bond for contractors while performance bond for retailers. Swiftbonds helps you understand more on bonds and getting bonded below.
What does it mean to be bonded?
When you say “bonded” this refers to a company having a bond. A bond, whether performance or payment, is a type of surety that is given to a project owner to assure the latter that their project will be executed or paid for in the event that the contractor or seller does not do his part of the contract.
There are three parties involved in getting bonded – the principal, the guarantor, and the obligee. The principal is the one who pays for the service or the product. They are the ones who get assured by the bond. The guarantor is the one who gives the assurance to the principal after going through the financial statements, credit scores, and history of the obligee. On the other hand, the obligee is the party who is paid to fulfill a certain job. They are the ones who get bonded.
How do you get bonded?
Getting bonded is a big asset for your company because this will immediately tell principals that you have the ability and the financial resources to fulfill their projects. At the same time, a bond will reassure a project owner that someone will be paying them for damages and other additional expenses when the obligee does not do their responsibility or if they default. However, not all companies need to be bonded. So to those who need to be, here are the steps you should follow to get bonded.
Know if you need to be bonded.
Again, not all companies need to be bonded. To know whether you are required to get a surety bond, ask the state government concerned with your industry’s bonds. This is because each state has a different set of rules that govern whether or not to get bonded. At the same time, different states have different requirements needed to be bonded. When you ask about the necessity of a bond for your company, also ask how to get one for more clarity.
Fix your financial statements.
In spite having different rules and requirements to getting a bond, all states will require you to pass financial statements at some point. There are many benefits to having fixed and prepared financial statements even if you don’t need to get a bond.
It is also highly recommended that when you do your financial statements, that you have a CPA doing it or guiding you. A CPA will help you avoid inconsistencies in your financial statements.
Look for a surety bond company.
A big part of this process is also looking for a surety bond company. When it comes to picking a company that will issue you a bond, you have to consider their specialty. There are companies that specialize in performance bonds for contractors while some specialize in payment bonds. You should also consider the rates they will give you in getting a surety bond.
Fill out the application form for surety bonds.
Once you have picked a surety bond company, start your application process by filling out their application form. This application form becomes the start of getting a bond. The first thing you have to do is inquire about the whole process of getting a company bonded. From there, you can start accomplishing forms or preparing the necessary documents.
Submit all the needed requirements.
After filling up the application form, it is not time to pass your requirements. Depending on the company, you will be asked for a bunch of financial statements. You will also be asked about your credit score, your history in the industry, and any other relevant document showing your company’s financial standing.
Pay the premium for your bond agreement.
The final step is signing and paying the agreement. Once you get your bond application approved, you will need to sign an indemnity agreement which will cover the scope of the bond, the surety bond company’s responsibilities as well as yours. You will also be asked to pay the premium.
The process of getting a business bonded varies per state and industry, but it is important to know these 6 steps because they are the standard steps across all surety bond companies.