More businesses need surety bonds than you might think. Though most insurance agents are familiar with the idea of Contract Bonds for construction companies, these businesses are not the only entities that need bonds.
If any of your clients work with public money or contract out services to governmental agencies, they need a bond. If there’s licensing involved in their businesses, they may very well need a bond. If they’re selling a controlled substance (like alcohol, tobacco or marijuana), they need a bond.
The list goes on and on. To help you sort through your list of clients in terms of who needs surety bonds, here are nine clients that can’t operate their businesses without one (or more!) surety bonds.
1. Construction Company
Let’s start with the most well-known. Almost all large-project construction companies will be required to take out some type of Contract Bond during the lifetime of their business.
For instance, under the Miller Act, all construction companies that bid on a governmental project must procure a Bid Bond and a Performance Bond if they win the project. Private companies often require these types of Contract Bonds as well.
The Performance and Payment Bond guarantees they’ll fulfill the terms of the contract. Many private multi-million-dollar construction projects require Performance Bonds as well.
There are a variety of other types of bonds that construction companies may be required to produce including: Encroachment Bonds, Improvement Bonds, and License Bonds.
2. Service Providers (Janitorial, Housekeeping, Security, etc.)
While Janitorial Bonds are rarely required by states, cleaning services that work with large businesses like hospitals, corporate parks and the like, usually find that these bonds, a type of Fidelity Bond, are required by their clients. Even when not required, holding a Janitorial Bond can help cleaning companies win bids over competitors who don’t take this extra step to earn their clients’ trust.
Other types of service companies that may need to take out a similar Fidelity Bond include gardening, security and moving businesses.
For some of these companies, state-specific bonds may also be required. For instance, California requires moving companies to hold several types of bonds depending on their business set up. Examples include a Protection of Subhaulers and Lessor Employees Bond and a Protection of Collect on Delivery Shipments Bond. In New Jersey, New Hampshire, Michigan and other states, security guard companies need a Security Agency or Security Guard Agency Bond to operate.
3. Public Officials (Notaries, Judges, Elected Officials)
Businesses aren’t the only entities that need to take out surety bonds. Under specific circumstances, individuals may need to hold a bond as well. For instance, more than half of U.S. states require notaries to be bonded. Some states require all municipal court judges or court administers to be bonded as well. Other public officials that may need a bond include mayors and city treasurers (or comptrollers), which helps protect tax dollars.
4. Car Dealership
As with mortgage brokers, most states require auto dealers to take out Motor Vehicle Dealer (MVD) Bonds (also called a Car Dealer Bond or DMV Bond) in order to obtain a dealer license. Depending on the state where the dealership is located, all types of car dealers need one of these bonds, whether they’re a franchise, a used car dealership, and auction house, or a wholesaler. The size of the bond varies by state. In Tennessee for instance, all types of car dealerships must post a $50,000 surety bond. In Louisiana, it’s $20,000 for new vehicle dealers but $50,000 for those who sell used cars.
In some states dealerships that sell other types of vehicles, such as trailers, motorsports vehicles, and RVs, fall under the Motor Vehicle Dealer Bond requirement. In other states, they require a separate bond. For instance, in New Mexico, motorcycle dealers need a $12,500 Motorcycle Dealer Bond.
5. Mortgage Broker
In most states, mortgage brokers are required to hold a surety bond to guarantee their compliance with the rules and regulations set forth by each state. The bonds also guarantee any clients that are financially impacted by the unethical behavior of the broker will be compensated.
The size of the bond required varies by state. States with the lowest requirements include Utah ($12,500) and Arizona ($15,000). States with the highest requirements include Pennsylvania ($50,000 to $500,000) and Massachusetts ($75,000 to $500,000).
6. Liquor Store
Just about every state requires sellers of alcohol to hold an Alcohol Bond in order to get a liquor license. They’re a bit of a blend between a license bond and a financial guarantee bond, because in addition to being a prerequisite for getting a license, they also guarantee payment of taxes.
Other names for an Alcohol Bond are Liquor License Bond, Alcohol Tax Bond, Liquor Tax Bond, Alcohol Ordinance Tax Bond, Beverage Tax Bond, Distilled Spirits License Bond, Malt Beverage License Bond and Wine Bond.
Depending on the state, there may be similar bonds for beer breweries, wineries and distilleries, wholesalers, warehouses, and restaurants that serve alcoholic beverages.
In several states, individual cities or municipalities also require a separate surety bond in order to be licensed to sell in that city/municipality. For instance, in Alabama, a seller of beer or wine is required by the state to obtain a $25,000 Sales Tax Surety Bond. If that retailer is located in the city of Decatur, it will also need a $5,000 or $10,000 Alcohol License Tax Bond.
7. Gas Station
All gas stations in the 48 continental states must hold an International Fuel Tax Bond (or IFTA Bond). Some states, including Ohio, Connecticut, and Arizona, among others, also require a separate surety bond in order to obtain a license. Additionally, gas stations that store fuel in an underground storage tank may be further required to hold an Underground Storage Tank (UST) Bond.
Gas stations that sell lottery tickets may also be required to hold a separate Lotto Bond for that service, as well.
8. School Bus Company
Many states require school bus companies to hold a School Bus Performance Bond for each contract they have with a school system. School Bus Performance Bonds can be annual or held for several years, depending on the terms of the contract. The amount of the School Bus Performance Bond required usually equals the full amount of the contract.
Depending on the state and school district, some school bus providers must also provide a Bid Bond when bidding on a contract. For instance, New Jersey requires school bus companies to hold a bid bond equal to a minimum of 5% of the annual cost of the transportation contract when making a bid.
Depending on the state in they make phone calls, telemarketers may be required to hold multiple surety bonds. For example, to call residents of Montana, a telemarketer will need to hold a Telemarketing Bond of $50,000 regardless of where the company is located. That same company will need to hold separate Telemarketing Bonds of $50,000 each to call residents in Arkansas, Delaware, Florida, and Louisiana, among several others.