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Commercial Surety Bonds

Commercial bonds help state and local governments regulate the free and safe flow of commerce. Many types of businesses and professionals must obtain these surety bonds - also sometimes called business bonds or commercial surety bonds - before being granted a license or other legal permission to conduct business. It's essential to have a bond if required because there can be significant penalties otherwise. It's just as important to understand how these surety bonds work and what they mean for the bonded party. This article outlines everything.

What Are Commercial Bonds?

Think of them as a guarantee that the bonded party will follow rules and regulations related to their profession. If they don't and it results in damages for a customer, the customer may file a claim against a commercial bond seeking compensation. This illustrates how surety bonds provide a mechanism to hold businesses and their owners accountable for behavior that violates laws or codes of conduct. Since business owners cannot avoid paying for their mistakes, they have a strong incentive to avoid any behavior that could result in a claim on the bond.

How do Commercial Bonds work?

When someone feels wronged by the bonded party, they submit a claim to the bond company. As long as the claim holds up under investigation, the bonded party must pay for it. However, if they can't or won't pay, the surety company that issues the surety bond agrees to settle the claim in full. However, the end responsibility for the amount expended settling claims always rests with the bonded party, who must pay the surety back the full amount of the claim plus interest and fees.

Who should get a Commercial Surety Bond?

Anyone required to do so by law. There are many different types of commercial bonds: for contractors, auto dealers, private schools, and pest control companies to name just a few. Having a commercial surety bond is often a condition of earning a professional license from the state. If necessary, seek out a surety bond immediately to avoid unnecessary delays in getting a license.

Who are the parties involved in Commercial Bonds?

Across all different types of commercial bonds, there are three parties involved in the surety bond agreement:

  • Principal - The business owner who owns the surety bond. The principal must maintain an active bond as long as they are in business and pay for any claims filed against the bond.
  • Obligee - The individual who can file claims against the surety bond seeking compensation for illegal or unethical behavior committed by the principal.
  • Surety - A company that issues commercial bonds. The surety also agrees to back up any bond it issues, meaning settle claims when the principal doesn't. When that happens, the principal must repay the debt to the surety.
  • How much do Commercial Bonds cost?

    Commercial bond rates vary depending on the type of surety bond and the state where the applicant is located. They also depend on the credit and financial standing of the applicant. In all cases, however, commercial bonds cost a small percentage of the surety bond total. That means a $50,000 surety bond may only cost as little as $500. Make sure to get a competitive bond quote by working with Viking Bond Service.

    How are claims handled for Commercial Bonds?

    Before settling a claim, the surety conducts a thorough investigation to verify that the claim is valid. The surety then pays the obligee an amount necessary to settle the claim, not exceeding the bond amount. Finally, the surety attempts to collect that same amount (plus interest and fees) from the principal. Remember, even if the surety agrees to honor all claims, it never agrees to accept the financial burden of those claims.

    How to apply for Commercial Bonds?

    Fortunately, it's a simple and straightforward process with Viking Bond Service. Simply complete a surety bond application, which will ask for information about your commercial endeavor and your background. If you have business partners, they will need to submit information as well. Underwriters at the surety may also need a financial statement or other supporting documentation. You will then receive a quote for the bond premium. After paying the premium, the surety bond remains active for a set period - usually 12 months - after which it must be renewed.

    Viking Bond Service - A Partner to Professionals

    Commercial surety bonds are essential to your business. Make sure you pick the right bonding partner from the start - one like Viking Bond Service, a nationally licensed surety agency. Speak to one of our surety bond experts by calling 1-888-278-7389 or by filling out the contact form on this page. You can also submit a bond application at any time and get a no-obligation quote within 24 hours. For all things commercial bonds, count on us.

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