What You Need To Know About Using A Contractor Bond On Your Next Project
As a small business owner, you're ready to start taking on larger, more comprehensive projects. One requirement you'll likely have to fulfill in order to bid on some of these potential projects is to purchase a contractor bond. Contractor bonds, also known as a surety bond, requires that the company who issues the bond find another contractor if the original contractor can't or will not complete the job. It also protects the project owner against contractors who try to renege on the terms of the deal.
On major public and private projects, the contractor who wins the bid is required to purchase a contractor bond. The United States Small Business Administration (SBA) can back these bonds. Check out this info to learn why it is a smart move to buy a contractor bond.
You May Have to Purchase a Contractor Bond to Bid on the Project
In order to even bid on government projects over a specified dollar amount, the contractor must show proof of purchasing a surety bond. It is becoming increasingly common for private customers to also require surety bonds for large projects.
If you refuse to purchase a contract bond, you literally limit the growth of your business. Government projects are a terrific source of income to many contractors; it only makes sense to increase your chances of being awarded these bids.
Small contractors who wish to expand their business may worry that they cannot secure approval for contractor bonding due to their limited funding or experience. One important role of the United States SBA is to guarantee contractor bonds for contractors who otherwise would not be able to secure approval for these bonds. All you have to do is apply for the bond through an SBA-approved surety agency. Remember that the SBA does not issue bonds; it only backs them.
Contractor Bonds Protect the Subcontractors
You may believe that contractor bonds are only meant to protect the the project owner. However, there are multiple types of contractor bonds that you can purchase. The payment bond guarantees that any subcontractors and suppliers who work on the project will be paid for their work or supplies. If you're trying to establish new business relationships, a payment contractor bond helps reassure new subcontractors and suppliers that they will receive payment for their work.
The SBA Wants to Help You Become Bondable on Your Own
One of the reasons that the SBA insures contractor bonds is that they are trying to help up-and-coming contractors become bondable on their own, without the SBA's assistance. The SBA does not want contractors to lose out on projects simply because they cannot secure the bonds necessary for the job.