Professional surety bonds, whether they are issued by the state or federal government, are important documents that protect you, your business, and the public against accidental harm. They are a form of insurance, if you want to think of it that way, but they are not an insurance product. You are much more likely to be hired by public and private consumers if you are bonded, which makes the stringent bonding process all worthwhile.

However, you should know that you cannot become bonded right when you start your contractor business. You will have to wait some time—at least a few months to a year. Here is why.

You Have to Find a Surety Bond Company You Want to Work With

Finding a surety bond company is not a cut-and-dry, done-deal sort of thing. You want to be absolutely certain that the surety company is one that you want to work with, not just one you can or have to work with. There are varying fees, too, depending on which surety company you choose.

Furthermore, you will want to choose a surety company that will back projects out-of-state in case you ever want to expand your contractor business outside your home state boundaries. There is also the possibility for expansion if you live in a city that encompasses multiple states by occupying a shared border, such as St. Louis, Missouri and St. Louis, Illinois. Finding such a surety company takes time, and in the midst of getting your contractor business up and running, you may not have enough time to do the research.

You Have to Be in Business Long Enough to Provide the Required Documentation

Most surety companies expect that contractors have been in business long enough to bring them specific documents as evidence of their business.

These documents frequently include:

• A detailed history of the largest jobs you have ever completed (when you start out, you have none, so that works against you right there!)
• A detailed and organized list of your employees (if it is just you and some part-timers right now, you will have to wait until business picks up)
• Full resumes on all of your employees, which should be as professional as possible
• Your detailed business plan (usually the one you used to get a business loan for start-up costs is acceptable)
• A continuity plan in the event of your untimely demise or your inability to lead the business forward (this is something most business owners do not even consider when they first start out)
• Full and accurate accounting books for your business, detailing your profits and losses (which also is not much until you have been in business for at least a year)
• Letters of recommendation from those who have seen your work and are familiar with it
• Proof that you have a bank line of credit to keep the cash flowing, bills paid, and paychecks paid even when work is scarce

As you can see, there is a lot of documentation that has to be collected, and it is frequently collected over time. Ergo, it would be nearly impossible to become bonded the minute you open your doors and begin providing whatever contracting services you are promoting.

You Have to Cover Losses to the Surety Company (Indemnity)

If you are ever late on your promises to complete a project, or if you do not complete the project to the consumer's satisfaction, it is the surety company that takes the hit. As part of the punitive measures set forth in the surety and indemnity documents, you have to cover their losses. That could equal hundreds of thousands or possibly millions, of dollars depending the project and the size of the failure or broken promise. As a new business owner, it is very unlikely that you can cover such expenses. You would need substantial profits or savings in the bank, or you could end up bankrupt before you even get started.

To learn more about surety bonds, contact a company like NFP, P & C, Inc.

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