Benefits of Surety Bonds: How Being Bonded Helps Home Business Owners

April 4, 2012 | By | Reply More

Like most new entrepreneurs, you’re likely wondering what it takes to run a legally licensed business out of your home. You probably know that in-home business owners aren’t exempt from certain licensing laws. To ensure that these licensing regulations are followed, government agencies often require business owners to purchase surety bond insurance before they can get licensed in certain fields. So, at this point, you’re probably wondering, “what is a surety bond, anyway?”

Although surety bonds have been used to regulate industries and eliminate fraud in worldwide business markets for hundreds of years, business owners are often unaware of their purpose until they have to buy one. As such, this article will explore the two major benefits bonding offers to in-home business owners and other entrepreneurs.

1) Surety bonds reinforce industry regulations.

If your business needs to be bonded, it’s probably because a government agency has set a surety bond requirement as a part of the licensing process. License and permit bonds are utilized across a number of industries, and they’re some of the most frequently required bond types out there. Because they’re a prerequisite to getting a business license, surety bonds encourage business owners to follow industry laws at the federal, state and local levels. To find out if you need a surety bond, you should contact the government agency that will license your new in-home start-up.

How each surety bond works varies depending on the exact language used on the bond form. Generally speaking, the legal language used in license and permit bonds refers to statutes that regulate the industry in which the business or individual works. For example, a telemarketing surety bond says that the bonded professional agrees to follow licensing protocol that prohibits telemarketers from harassing consumers. When bonded businesses don’t meet expectations outlined in their bonds, harmed parties can make claims to gain reparation.

2) Surety bonds limit fraudulent competitors.

Each time a surety company issues a bond, it provides a financial guarantee that the bonded entity will meet the bond’s contractual terms. Because the surety that writes the bond could potentially incur financial loss if a claim were to be made on a bond, all applicants are subject to a critical application process. Before issuing a bond, surety providers conduct a thorough background check that includes a review of credit scores, financial records and work histories. Some applicants will simply fail to meet qualifying standards and thus be denied a bond. Without the required surety bond, an unqualified company cannot get a business license.

Without surety bond insurance, many more financially unstable and fraudulent businesses would be allowed to operate within in your market. Not only would this leave consumers susceptible to unethical business owners, but it would also take away business from legitimate enterprises that strive to uphold high standards. The financial accountability provided by surety bonds legitimizes companies working across a number of markets. As such, the bonding process protects both your business and your consumers, and thus minimizes the potential for fraudulent activity.

Although getting a surety bond might seem like a hassle for in-home business owners, their benefits should not be undervalued. With a basic understanding of surety bonds, you’ll be better prepared if you ever need to purchase one.

Danielle Rodabaugh is the editor of the Surety Bonds Insider, an online publication that explores trends in the surety industry and explains them to consumers. Danielle is also a marketing specialist for, a nationwide surety bond producer that helps entrepreneurs open for business as quickly as possible.

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Category: Insurance

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