As a contractor, striking a balance between delivering exceptional service to clients and safeguarding your own interests is paramount. This delicate equilibrium often leads you to a crucial concept like surety bonds. If you’re scratching your head, wondering how these two aspects converge, you’re not alone.
In this article, we will demystify surety bonds, shedding light on what they are, their necessity in your profession, and the steps to acquire them effectively.
Surety bonds might sound familiar, yet remain somewhat elusive. As a contractor, your journey to understand and embrace them is both necessary and timely. That is why you need to seek to get more info about it.
Really, the concept isn’t just about ticking a box; it’s about embracing a layer of protection that’s becoming increasingly important in your field.
With a myriad of questions about surety bonds swirling in your mind, let’s take a moment to unravel their mysteries and discover how they can bolster your business.
What Is a Surety Bond?
What exactly is a surety bond? This is, without a doubt, the first thing you want to understand, and it is no wonder. After all, you can’t proceed to the more complex things without actually learning the basics. Let us, thus, cover the basics right away.
Basically, this is a legally binding document that exists to ensure that obligations are met, or that recompense is paid in case of failure, so as to cover the missing obligations. They play a crucial role in the construction industry, as they serve to protect the project owners and ensure that the contractors will fulfill their obligations.
As the contractor, you mitigate your construction risks by getting this bond. At the same time, you also get protected in case something happens because the surety company will be there to compensate the project owners in case you default on the work.
Of course, that doesn’t mean that you won’t have to repay what has been compensated, but it can be of quite some help in the initial stages.
A surety bond is made between three parties, the project owner, the contractor, and, of course, the surety company. This is something you may have guessed already while I was talking about the compensation process in case you, as the contractor, default.
To the project owner, the bond serves as a kind of guarantee that the contractor will complete the work on time and that all the contractual obligations will be met. Project owners are also assured that they will be protected in case the contractors don’t meet their obligations. This is essentially how the concept works.
Do You Need It?
You understand how it all works and you understand the entire principle behind surety bonds. What you may be confused about is whether you actually need these in the first place.
Sure, they are aimed at protecting the project owner first, but that doesn’t mean that you, as the contractor, won’t benefit from getting them. Before you hear about how you can benefit, though, let me make one thing perfectly clear.
The answer to the above question is yes because surety bonds are actually required on the local, state, and federal levels.
So, you are basically obligated to get these if you want to get your license. And, if you do a bit more research about California requirements, for example, you will realize that you need to get a $25,000 contractor license bond, while the amount may be different in other states. This means that checking the requirements for your specific state is a must.
As I’ve mentioned, though, you will also benefit from getting the bond, meaning that contractors don’t get them simply because they are required to, but also because it brings something to the table.
Basically, you will get higher chances of winning projects when you show the owner that they will be protected this way during the course of the project. You are more likely to get hired, so to speak.
By constantly providing your clients with such protection, you will build trust with them. And, building trust leads to building a great reputation in your community. That further results in winning even more projects, meaning that the surety bond could be what you need to make your business thrive.
How to Get a Good One?
Wondering how to get a good one for you? Well, you are already aware of the actual amount you have to get. So, the only thing to understand now is that you will have to choose the right surety company to cooperate with her. You will need to choose one that will abide by all the laws you have to observe during this process.
Finding the right company should, thus, be your focus here. You can do it by searching for them online and by comparing their offers, as well as their reputations. The key is in working with those companies that have been around for a while and that are highly trusted by other contractors as well since that is how you will be guaranteed the best services.