There are many steps that go into launching a new company. Along with securing financing, choosing an infrastructure, and purchasing business insurance, it’s important to consider your need for a surety bond. This is a legally binding agreement between three parties that guarantees a project will be completed according to contract. They are required under a range of circumstances for a business to operate legally, but many entrepreneurs remain unfamiliar with how they work and why they’re necessary. Below is a brief overview of the topic.
What Entrepreneurs Should Know About Surety Bonds
How Do Surety Bonds Work?
Surety bonds are frequently misunderstood to be a form of business insurance, but there are distinct differences between the two. The three parties involved in a surety bond include the obligee, principal, and surety. The obligee is the party requiring the principal to obtain the bond, and the surety is the party responsible for financially backing it. Surety bonds work to protect the obligee, as well as the public in certain instances. If the principal fails to meet their obligations and a claim is filed against the bond, the surety will step in to compensate the obligee. The principal will then be accountable for repaying the surety.
When Are Surety Bonds Required in North Carolina?
Depending on the field of work you do, you may be required to get a surety bond before your business operations begin or you bid on any projects. Companies that often need surety bonds include auto dealerships, health clubs, mortgage brokers, collection agencies, auctioneers, and construction. In North Carolina, specific professions must have a license and permit bond or a contractor bond to work on public construction projects.
If you are obligated to obtain a surety bond, you can rely on the professionals at MP Davis Insurance Agency to walk you through the application process. They will provide clarity on the type of bond you need and advise you on additional business insurance products to consider based on the unique risks your company faces. Offering more than four decades of industry experience, the agency proudly remains committed to serving the entire Piedmont Triad area of North Carolina. Call (336) 498-7606 to inquire about the cost of a surety bond or visit them online for more information on the business insurance services they provide.