Small Business Bonds: What Are They & How Can They Help?

December 21, 2023

When you hear the word “bond,” you might be thinking about stocks and investments, risks and returns. While close in concept, that’s not the type of bond we’re discussing today. Business bonds offer critical protection for your small business when things go wrong.

What are business bonds?

Officially called surety bonds, business bonds reassure clients that they’ll be compensated if work you’ve promised isn’t completed as laid out in a contract.

How does this compensation work?

You (the Principal) purchase a bond from a surety company. Then, if you break the contract or are otherwise unable to meet your client’s expectations, your client (the Obligee) can file a claim with the surety company and request reimbursement.

This kind of protection is required by some clients (usually large corporations or state/municipal institutions) and in specific industries (like real estate, construction, manufacturing, and personal care). It’s also necessary for any small business owners who offer employee benefits, as it defends participating employees against dishonesty, fraud, and theft.

NOTE: Business bonds are often confused with business insurance. The primary difference is that insurance protects your business while bonds protect your clients.

Benefits of small business bonds

Surety bonds can help your small business in three key ways:

1. Create trust with clients.

Bonds suggest your business is financially stable (and not on the brink of bankruptcy). They assure clients that their investment is safe even if you don’t deliver as anticipated. By purchasing appropriate bonds, you increase client confidence that their satisfaction is your highest priority.

2. Secure more (and higher quality) clients.

Depending on your industry, your clients may choose to do business with you in large part BECAUSE you are bonded. Large businesses and institutions are more likely to work with you if you can guarantee their investment is safe.

3. Protect your reputation.

If you are unable to meet your client’s expectations for some reason, a surety bond could be your saving grace. Instead of taking a hit to your reputation, you can fall back on your surety bond to compensate your client for their unmet needs.

FSU HUB | Financial & Bonding Assistance

Surety bonds are largely industry-specific and can be complex for new business owners. With a mission to help small business owners thrive, Fayetteville-Cumberland Regional Entrepreneur & Business HUB offers bonding assistance and a range of other financial support services in the following North Carolina counties:

Bladen County
Columbus County
Cumberland County
Harnett County
Hoke County
Moore County
Richmond County
Robeson County
Sampson County
Scotland County