As a business owner, you’re always looking for ways to protect your company’s interests. One important way to do this is by getting bonded. A surety bond is a legally binding agreement between three parties: the principal (you or your business), the surety (the bonding company), and the obligee (the entity requiring the bond). In Canada, there are many reasons why your business should be bonded, and in this post, we’ll explore them in depth.
First and foremost, being bonded can help establish credibility and trust with your customers. When you are bonded, it shows that you are willing to go the extra mile to ensure that your work is done correctly and that your customers are protected. This is particularly important in industries such as construction, where customers are looking for contractors who are reliable and trustworthy.
Secondly, being bonded can help you win more business. Many organizations require their contractors to be bonded as a condition of doing business with them. By having a surety bond in place, you can increase your chances of winning contracts and bids.
It’s important to note, if you fail to complete a project or fail to meet your contractual obligations, your customer can make a claim against your bond. If the claim is valid, the surety will pay the claim up to the bond amount. However, bonding companies require an indemnity agreement to be signed, which makes the contractor responsible to pay the surety back in the event of a loss.
Often times, it will be a requirement in a specific industry to be bonded in order to operate.
Being bonded can also help you comply with legal requirements. In some industries, bonding is required by law. Failure to obtain the necessary bonds could result in fines, penalties, or even the revocation of your license to do business.
There are many different types of bonds, and the one that’s right for your business will depend on the industry you’re in and the specific requirements of your customers or clients. Some of the most common types of bonds include contract bonds, license and permit bonds, customs and excise bonds, and court bonds.
Contract Bonds and the Construction Industry
Contract bonds are used in the construction industry and are designed to guarantee that a contractor will complete a project according to the terms of the contract. License and permit bonds are required by some regulatory bodies to ensure that businesses comply with laws and regulations. Court bonds are required in legal proceedings and guarantee that the bonded party will fulfill their legal obligations.
In some cases, a business may be required to have multiple bonds. For example, a construction company may need a bid bond, a performance bond, and a labour & material payment bond for a single project. We can assist in setting all of this up through what’s called a Bond Facility. Think of it like an annual subscription for your business to provide the contract bonds you need in your course of operations.
Finally, it’s worth noting that getting bonded is not always a straightforward process. Bonding underwriters will evaluate your business and financial history, as well as your ability to fulfill your contractual obligations, before issuing a bond for the first time. This means that if you have a history of legal issues or financial problems, you may have difficulty getting bonded. Financial position, the character of the principals, and your work history are all taken into consideration.
In conclusion, there are many reasons why your business should be bonded. Whether you’re looking to establish credibility with your customers, replace a letter of credit with a bond, or comply with legal requirements, getting bonded can be a smart investment. Just remember that not all bonds are created equal, and it’s important to work with a reputable bonding company to ensure that you have the right bonds in place to meet all of your obligations. We can help with that! Book a consultation below.
