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Contractors who are not fully bonded run the risk of not getting paying customers. Without the appropriate types of bonds, your company will not be eligible for many types of common contractor opportunities. Even when you’re not interested in working as a contractor or supplier for governments or larger contracting companies, you may still lose out on lucrative consumer business jobs. Consumers trust contractors much more when the contractor is bonded, because they feel as if they are protected if a contractor does not finish the job he contracted for. As you can see, these are the types of risks that can cause your business to fail.
Contractor bonds are a way for your company to win more business, because they provide a measure of guarantee to your customers and clients. A bond is simply a guarantee that your company will provide goods or services according to specified terms. Bonds are written by insurance companies, third party entities who agree to absorb the risks of working with your business. By having a third party provide a guarantee for your company, your potential clients do not have to worry about whether you will perform as stated. Because if you do not, then they are compensated by the guaranteeing company.
There are several types of bonds that can are important to the success of your contracting company, and in some cases they may be required depending on your company’s locale or the type of work you want to perform.
A license bond is often required by local business licensing authorities. You may be unable to get a city or state business license for your contracting company for example, without first getting a license bond.
Contract bonds are commonly used between contracting companies, or by government entities. Your company may be eligible for a lucrative sub-contracting opportunity with a larger contracting company. That company may not allow you to even place a bid on the project however, if you do not first obtain a contract bond. Contract bonds guarantee that you will provide the specified services in the contract, or that you will complete specific tasks by certain deadlines. If you fail to perform according to the contract’s terms, the larger contracting company could be in jeopardy of breaching their own contracts as a result. By only working with sub-contractors who have a contract bond, they are able to protect themselves from those potential risks.
This type of bond provides a guarantee that you will not exceed the bid you made for a project’s contract.
Performance bonds will guarantee your contractor performance to your clients. This type of bond helps consumers feel reassured that you will complete specified actions for example. It may also be used by consumers or other business customers your company has, to ensure a specific level of quality is achieved in the work services your company provides.
Payment bonds are commonly used to guarantee financial related issues, particularly payment and the use of funds. Payment related payment bonds are specifically for ensuring that the materials your company is using are fully paid for. If you were to use materials or supplies that were on credit for example, they could be subject to a lien if you fail to finish paying for them later. The client that you supplied those materials to wants assurance that a lien holder will not come along later and try to repossess the materials. The other aspect of a payment bond is meant to provide a guarantee that you will use collected funds in the way they’re supposed to be used. If your contracting company sells supplies to a consumer for example, you must collect sales tax on those materials. Financial bonds provide a guarantee that you will pay those sales taxes to your local taxation authority.