What Does It Mean When a Company Is Bonded?
When you see “licensed, insured, and bonded” in a company’s credentials, you probably understand the first two. Licensed means the business has government approval to operate. Insured means they carry insurance coverage to protect against financial loss. But what about bonded?
The bonded company definition is less well known. Bonding is a valuable investment for companies, contractors or small businesses seeking to build trust with customers.
A bonded company has purchased one or more kinds of surety bonds. A bond is a promise between three parties:
- The customer
- The company
- The bonding agency
You want to choose a company who works with a reputable carrier so you can count on the company to fulfill its service promise. If an organization fails in its promise, the customer can file a claim with the organization to recover any funds invested for the unfulfilled service. The bonding company has secured funds or identified assets and has placed these funds or assets in control of the state. If you need to file a claim against the organization, these funds are available to reimburse you. It's important to note that a surety will not reimburse a customer if the property is damaged or if someone gets hurt. Bonds deals specifically with promised business services.
Why Bonding Matters
Bonding builds trust. Before issuing a bond, the surety investigates the company’s financial stability and reputation. This means a bonded company has passed a credibility check and put money or assets on the line to back its promises.
With 25,000 kinds of bonds available, it may be helpful to verify the type of bond or bonds the involved company carries as you evaluate whether to do business with them.
Some companies, like mortgage brokers and auto dealers, are required by law to buy a license and permit bond to get a license to do business.
Businesses with direct contact with customer's homes or belongings, like caregiving services or janitorial services, may invest in a business service bond. This type of bond protects customers if the company's employees steal from the customer while in their home or working with their belongings.
If you are working with a construction firm or contractor, you may want to determine if the company carries a contract bond. A contract bond helps ensure the company stays on budget, delivers on time, and performs the promised services.
Determining the Authenticity of Surety Bonds
Now that you understand the bonded company definition and the types of bonds to verify, you can take the following steps to determine if a company's claim about being bonded is authentic.
- Talk with your local city hall or township team to find out their bonding requirements for companies or contractors. Your state will also have guidelines for companies and consumers. Most states have an agency or board responsible for professional licensing and bonding.
- You can work with a lawyer to help you understand the types of bonds needed for your agreement with a company or contractor. The lawyer can also tell you the protection the bonds provide.
- Ask for a bond number and certification or for a copy of the bonds they hold. This documentation should have the contact information for the surety company providing the bond. Be sure to check the date and duration of the bond to confirm coverage is up to date.
- The Surety & Fidelity Association of America maintains a list of members that have volunteered to be included. You can access this list to find out how to contact a bonding company to authenticate it.
What Bonds Tell You About a Business
The bonded company definition extends beyond a piece or pieces of paper. When an organization or contractor tells you they're bonded, they're letting you know the following facts about them:
- They are law-abiding. By investing in a license and permit bond, they are telling you they've followed the legal requirements of the state or municipality for doing business.
- They are trustworthy. With a business bond, the organization is assuring you their employees will respect your property and belongings. If an employee falls short of expectations, the entity will step up and repair the relationship with you.
- They are reliable. A contract bond tells you the company has put money and assets on the line to guarantee they will deliver on time, on budget and as promised.
- They are reputable. Before selling a bond, the surety organization has investigated an entity or contractor to make sure they are honest, compliant, trustworthy, and financially sound. If an organization or contractor is bonded, you can feel reassured that a reputable third party, the surety firm, has done some of your homework for you.
Companies or contractors who invest in surety bonds have made a sound business decision. But take time to verify that their paperwork is accurate and timely. You'll feel more confident about your decision to do business with them, and they'll know you want to work with a good company.
NFP has been the leader in bonding solutions since 1984. Let our team of expert bonding professionals show you how to get properly bonded.
