If you are a contractor who would like to bid on jobs that require surety bonds, you need to have these qualifications. First of all, you should have an insurance broker who knows about surety bonds and where to get them. Secondly, you need to have an address for your place of business or your building where you keep your equipment.
You might have a hard time trying to get a surety bond without a building and equipment. Thirdly, you need to keep a log of your experience in the field of work that you plan on bidding. Tangible assets as well as money in the bank are the easiest way to get a surety bond.
As a consumer, it can sometimes be intimidating going into a car dealership. One thing that may make you feel better and more confident in doing so is an understanding of what is known as a motor vehicle dealer bond.
There many different types of bonds. In this case, we are talking about a particular type known as a surety bond. With this type of bond, a third party agrees to pay for certain obligations of a second party in case that party not perform as required. In this case, the third party is a bond company issuing a bond to a car dealership, the second party.
“MVD” is an abbreviation for the motor vehicle dealer, or in this case, a motor vehicle dealer bond. Car dealers are required to obtain this bond before they can get a license to sell cars. The bond stands as a sort of financial guarantee that the dealer will comply with all relevant laws as well as pay all applicable taxes. Importantly, this bond will also compensate a consumer for any consequences that arise from the fraudulent or wrongful actions of an employee of the dealership as it relates to the consumer. Put simply, you have more protection than you think when dealing with an auto dealership.
You need to be protected for many potential financial disasters, and a surety bond (like an auto dealer bond) is one way to protect both you or your small business. There are many ways that a surety bond may benefit you. A surety bond protects the purchaser or the person who is expected a service rendered for them.
An example would be if your small business was being remodeled and you need it finished on time as agreed upon with the contractor. You could take out a surety bond to insure timely and quality work from your contractor and subcontractor. It sounds like insurance taken out by you to make sure that work you have hired for is up to your satisfaction. If the work is not done on time or to the terms in your agreement, the agency that sold you the surety bond would investigate. If fraud, incomplete work, shoddy workmanship is proven, than you would be paid accordingly. The pay out is dependent on the amount of bond you secured for this event or contractor.
In order to buy a surety bond, you need to look for a reputable agent. You must have excellent credit, solid financial reports, and an honest, reliable reputation. If all of these are in order, than you could buy your bond according to your personal or small business needs to prevent financial problems in the future.
When required by law, of course, your company should use surety bonds. Construction companies, Real Estate brokers, home care organizations and car dealerships fall under this category.
What if my business isn’t required to have one? Then it is time to do a little research. Does your organization have positions which are sensitive in nature? Do your employees handle large sums of money or have acess to proprietary information and/or materials? You may want to consider financial protection against dishonest employees. Contracts can give you legal recourse but surety bonds will help with the immediate financial loss. Are your competitors or their employees bonded? Although surety bonds may not be required legally, they may still be an industry standard. Find out why. Chances are, someone, somewhere got burned pretty badly by not having this sort of protection in place.
What business today can truly afford such a loss? Also, do your competitors advertise this to their customers or clients? This could be more than enough reason to start using bonds. After all, your business is reputable and professional and the world should know it. Customers should understand that there is a rigorous process involved. Your organization has been fully and independently evaluated. The business has been proven capable and clients can trust that their projects or requests will be completed as promised. For most, that is even better than a money back guaruntee.
A surety bond is a contract between three different parties. These include; the Obligee (who is the recipient of the obligation or promises entailed in the contract), the Principal (who is responsible for meeting the promises to the Obligee), and the Surety (whose main purpose is to provide a guarantee to the Obligee that the Principal would be able to meet the terms and conditions stipulated in the contract).
The primary purpose of a surety bond is to ensure that the obligations, or promises, stipulated in the contract are met by the principal. In the event, that the principal is unable to meet these obligations, the surety steps in order to make sure that the obligations stipulated are met.
The simplest way to explain a surety bond is that it is a form of credit and not insurance. A surety bond is a guarantee and what it guarantees depends on the stipulations of the bond.
Generally, a surety is an agreement between three legal entities: You (known as the principal), the party (that needs the surety bond; normally, the government) also known as the obligee, and the surety bond company that represents insurance companies having surety bond products.
The principal gets a surety bond from his insurance company that has a list of surety bond companies. To get a surety bond, the principal must have assets worth up to the amount of credit he is asking for from the surety bond company. These instruments are really temporary credit; until, a job is completed.
If the job is contracted for 1 million dollars, the principal needs to find a surety bond company to give him credit up to 1 million dollars. How much he pays that surety bond company depends on his reputation in the work that he is bidding, his assets and how much cash he actually has been on hand. Like any credit, the more money has been available, the more credit you can qualify for.
Sureties, which are often a unique entity within an insurance organization, employ extremely critical procedures to assess the potential risk of a contractor before deciding to provide a surety bond for any project. The Emerging contractors and small companies, often, find it difficult to obtain surety bonds through normal commercial channels. Surety bonds are very much like credit, and the underwriters weigh the risks of a surety bond just as a bank would consider an individual’s creditworthiness for a loan. The inability to obtain a bond can limit the ability of new companies to compete for contracts. Many contracts require a surety bond, something that sureties do not prefer to provide without some kind of guarantee.
Because the ability to obtain a bond is so vital to conducting business, the Small Business Administration offers a bond incentive program for qualifying contractors. The SBA guarantees contract bonds for up to $2 million for bid, performance and payment bonds. To qualify for this program the contractor must first apply for a bond with one of the companies or agents on the SBA’s list of Prior Approval Surety Companies or Preferred Surety Companies. The surety will decide, weather; they will issue a bond without an SBA guarantee, or if one is required. This program is a valuable means for new and emerging contractors to become established and remain competitive in their industries.