Danielle Rodabaugh, editor of Surety Bonds Insider, provides some tips on what Missouri business owners need to know about bonding.
Although most new business owners in Missouri have never even heard of surety bonds, they're often a hidden cost that comes along with managing a business. Government agencies frequently require surety bonds as a prerequisite to the business licensing process, which is why they're also known as "license and permit bonds." The following tips can help guide Missouri business owners through the bonding process.
1) Understand how surety bonds work.
All too often business owners don't know how surety bonds work or why they're required to purchase them. Since surety bonds are typically underwritten by insurance companies, you might assume they function like insurance policies. However, your surety bond is actually a line of credit for which you, the business owner, are financially responsible.
When you buy a surety bond, you're binding yourself to a legally enforceable contract that says you'll do your job according to specific laws. The regulations you'll be expected to follow depend on the legal language found on your specific surety bond form. As with any other contract, you should fully understand your obligations under the bond before signing it.
2) Find the best surety bond premium.
Surety bond premiums range from just $100 to thousands of dollars depending on the type of bond needed, its amount and the surety provider that backs it. Before calculating a premium for your bond, a Missouri bond company will conduct a thorough review of your financial credentials. Those who qualify for the standard market typically pay a premium that's 1 to 2% of the bond amount, which would be $250 to $500 for a typical $25,000 license and permit bond.
Depending on the type of bond you need, your credit score could play a role in determining the surety bond cost. Fortunately, some surety providers offer premium financing plans so business owners don't have to pay the full amount upfront. Small business owners who have trouble getting a surety bond through the commercial market can look to the Small Business Administration's Office of Surety Guarantees for bonding assistance.
3) Maintain your bond according to law.
Numerous Missouri surety bond laws have been established to regulate professions within various industries. Because surety bonds are legal contracts required by law, you need to take them seriously. If you can't find a surety provider that will issue you the needed bond, you will not be permitted to work in the state. Operating a Missouri-based business without having the proper bonding in place can have a number of consequences, such as:
- penalty fines
- license suspension or revocation
- legal action against your company
- an inability to get bonded in the future
To maintain your bonded status, you'll have to renew your bond before it expires. Most surety bonds are issued for one-year terms, and it's up to you to know the expiration date. You should to recontact your surety provider to renew the bond 30 to 90 days before your bond is set to expire. If you put off the renewal process, bonding could become exponentially more difficult. Having plenty of time to renew your bond also gives you a chance to shop around to find a lower surety bond cost.
Armed with this basic yet thorough guide to bonding, Missouri business owners should find themselves more confident when applying for a surety bond.
Content contributed by Kate Pope Hodel, KCSourceLink, a proud affiliate of U.S.SourceLink, America's largest resource network for entrepreneurs.