How much does a surety bond cost?
The cost of a surety bond is determined by the type of bond, the principal’s financial strength, and your credit profile. You should also be aware that there are other costs associated with bonding beyond the premium itself. These additional costs may include state filing fees; collateral deposit requirements, such as cash margin or securities deposit; attorney fees; possible increased underwriting fees; and many other variables.
Additionally, you should be aware that the payment of premiums on a bond is considered income for tax purposes. Please contact your financial or tax advisor to determine how the premium payments will affect your personal situation.
Is a surety bond expensive?
One of the things that most small business owners ask themselves is if they need a surety bond. The answer to this question isn’t as straightforward as you may think because it depends on what you are trying to do. If you want to be able to contract with certain high-risk clients you will probably need one. Or maybe your business situation requires it.
Regardless, paying for a surety bond is not an expense that needs to be taken lightly. It can cost upwards of $1,000 per year depending on how much coverage you require, so the first thing that you have to do is determine exactly how much money your company needs or expects to turn over in the course of the year before making any decisions regarding obtaining one.
Can I get a free estimate for my new business?
Business owners are under constant pressure to get their new business off the ground. This can often result in them making poor financial decisions concerning how quickly they get started, ultimately leading to their failure before they even begin.
A common mistake that I see over and over is when an owner decides to hire a hosting company, web developer, and graphic designer in order to create a professional-looking website rather than doing it themselves. While this may sound like an attractive proposition, in the beginning, you should always remember that you get exactly what you pay for.
When you decide to hire an outside company it is very likely that you will never see the project again after handing over your credit card information. This means that if they make mistakes or deliver sub-par work, there is nothing you can do about it. Furthermore, even if they get everything right, what happens when your website requires routine updates? Who decides which changes are made; the web developer or yourself?
Additionally, even if this process works without any issues, who pays for hosting and domain name fees in the future once the initial package runs out? If your business plan includes online advertising campaigns through Google Adwords (or similar) then who manages these bids and ensures that they remain profitable as time goes on? Most importantly of all, why should any of these details fall upon you when it is your livelihood on the line?
You may think that hiring one person to do all of this for you makes sense right now but I can assure you that it will be more expensive in the long run if you get off on the wrong foot.
What happens when I don’t have a surety bond in place?
A surety bond is a contract between three parties; the principal, the obligee or beneficiary of the bond, the agency, and the surety the company guaranteeing full compliance with terms. When you choose to work without a surety bond in place, whether it is because you don’t think that it is necessary or you are simply unaware of its existence, your business opens itself up to severe risk.
You can easily become responsible for penalties made by employees who work on your property. Those penalties may result in fines for not having workers comp coverage if they get injured or unemployment insurance if they lose their jobs due to negligent actions while working on your site. A surety bond protects both client and contractor against these instances of risk.
When you are not bonded, you will have no protection against the state coming after you for nonpayment of taxes. Tax liens will be imposed on your business property and your bank accounts can be seized to pay for any debt incurred by the business.
Approximately one year prior to being required to obtain a surety bond, all new applicants are notified that they must have their new company information submitted with the state within 60 days. This notice does not pertain to businesses that already carry an active surety bond – they may continue uninterrupted until renewal time if upon renewal or during an audit, they still meet bonding requirements. If at any time, they no longer meet bonding requirements or their license expires for non-renewal, they are required to obtain surety bond coverage.