Surety bonds guarantee to other businesses that your business will fulfill the contracts you sign. This is a way for your small business to get other businesses to take a chance and do business with your small company that is unknown to them. Usually surety bonds are used in situations where you are signing a longterm contract to provide products or services to the other business.
By law, prime contractors to the federal government must post surety bonds on federal construction projects valued at $25,000 or more. Many state, county, city and private-sector projects require bonding as well. The Small Business Administrationg (SBA) can guarantee bid, performance and payment bonds for contracts up to $1.25 million for small businesses that cannot obtain bonds through regular commercial channels. Bonds may be obtained in two ways: prior approval - contractors apply through a surety bonding agent. The guaranty goes to the surety; and preferred Sureties - preferred sureties are authorized by the SBA to issue, monitor and service bonds without prior SBA approval.
If you apply for a surety bond, be prepared for a thorough background check by the insurance underwriter.
