When your firm decides to bid on a construction project or a stakeholder seeks extra protection for policyholders against potential losses, you may need to secure a surety bond. Surety bonds are commonly required in many business or financial situations, such as for bidding on commercial or government contracts, to certify that your company can meet the obligations outlined in the contract. Overlooking these common business instruments could mean the difference between winning or losing a valuable contract.
What is a Surety Bond?
A surety bond is a legally binding financial guarantee that certifies that the individual or entity will meet the obligations they agreed to under a contract or comply with government regulations. For instance, a locksmith is bonded to protect customers in the event keys to a home or business are stolen. Unlike traditional insurance, which protects a policyholder, a surety bond is a financial guarantee to the obligee (the entity requiring the bond). In the event you (the principal) fail to meet the terms of the contract, the obligee can call the bond, and the surety company will pay the face value of the bond.
- The Principal/Obligor: The business or individual securing a bond.
- The Obligee: The entity that requires the bond.
- The Surety: The insurance company that underwrites the bond, providing a financial guarantee that the Principal will perform accordingly.
Types of Surety Bonds
There are essentially four types of surety bonds in Florida:
Construction Bonds (Contract Bonds)
Construction bonds are a standard business practice for contractors. They include Bid Bonds certifying that a contractor will accept the contract if awarded, Performance Bonds guaranteeing that the work will meet contract specifications, and Payment Bonds guaranteeing payment to subcontractors and suppliers.
Court Bonds
Required by law to be filed with the court during judicial proceedings, court bonds protect against financial loss if the court rules against the plaintiff. They include Fiduciary Bonds (for executors or guardians) and Judicial Bonds (for plaintiffs or defendants in civil cases).
Fidelity Bonds
These protect a business against losses resulting from employee dishonesty, such as theft, fraud, or embezzlement. For example, a retailer may require an employee or courier responsible for making night deposits to be bonded.
License & Permit Bonds (Commercial Bonds)
The Florida Department of Business and Professional Regulation (DBPR) requires many professions, such as auto dealers, mortgage brokers, and HVAC contractors, to obtain a bond as a condition of licensure to do business in the state.
When Do I Need a Surety Bond in Florida?
As per the Florida Little Miller Act, most public construction projects exceeding $200,000 require performance and payment bonds. Also, if you are looking to obtain or renew a professional license in the Sunshine State, a license bond is often a mandatory prerequisite. An individual or a company may require a bond to guarantee your work or service. Many service companies are bonded to assure customers they will perform as promised, giving them a competitive advantage over unbonded competitors.
How Much Do They Cost?
The cost of a surety bond, known as the premium, is typically a small percentage of the total bond amount—usually ranging from 1% to 3% for those with strong credit. Factors that influence your rate include:
- The Bond Type and Amount: Larger, high-risk bonds (like performance bonds) may carry different rates than standard license bonds.
- Credit Score: Your personal and business credit history is the primary factor in determining the premium.
- Financial Strength: For larger contracts or fidelity bonds, the surety may review your business’s financial statements and industry experience.
Your Trusted Choice Agency in Florida
As a proud member of Trusted Choice, Commercial Insurance Specialists adheres to a higher standard of business ethics and transparency. This designation signifies that we work for you—not the insurance carrier. This independence gives us the flexibility to compare quotes from multiple top-tier sureties, ensuring we find the most competitive rates for your bonding requirements.
Does Your Business Need a Florida Surety Bond?
Get the Florida Surety Bonds your business needs. Commercial Insurance Specialists is a locally operated, family-owned independent insurance agency with three convenient office locations throughout Central Florida and the Gulf Coast. Contact us today for a free, no-obligation quote for all your Florida surety bond needs!
