What Should You Know About Financial Guarantee Surety Bond?
When you start a business, there is no way to avoid having and maintaining a surety bond. As a matter of fact, it is one of the requirements to doing business in most states and for most types of businesses. Even if you are not familiar with what this type of insurance does, you should know that it can cover your firm against damages or financial losses.
At first glance, it seems like any business owner can benefit from having this type of coverage. After all, every little bit helps when it comes to minimizing risks and maximizing profits. But there are certain types of enterprises who definitely need such policies the most: small home-based businesses and start-ups.
As much as possible, these kinds of businesses want to keep costs low in order to avoid having problems in terms of capitalization and management. However, they forget that when accidents happen (and they will), the consequences could be devastating not only for their business but also for their family’s financial security. It is important to know how this type of insurance works so you can make the right decision in the end.
What Is Financial Guarantee Surety Bond?
There are two categories of surety: credit and non-credit. A credit surety bond is used to guarantee the fulfillment of a contract, often without requiring collateral. For example, if you are doing business with another party but are unsure whether they will honor their commitments, it would be safer to request that they provide an acceptable credit surety bond. If they fail to do so or cancel the agreement beforehand, your firm will not have any financial losses.
On the other hand, non-credit surety bonds are for those who need to post some kind of security before doing business. This could include offering real estate as collateral or giving out an irrevocable letter of credit from a bank. The latter type helps companies cover damages caused by events such as product failure or negligence on the part of their employees.
Examples of non-credit surety bonds would be performance or financial guarantee surety bonds. The former covers you in the event that your customers are unsatisfied with your product, while the latter is used to protect clients against employers’ liability claims. This means that if an employee gets injured on the job, you will have to pay for their medical expenses and lost wages until they recover or find another job elsewhere.
What Do You Get When You Buy Financial Guarantee Surety Bond?
As mentioned earlier, a financial guarantee surety bond acts as protection for both parties involved in a business transaction. This type of coverage can provide your company with legal defense through an attorney should someone make a legitimate claim against you regarding damaged property, injuries, or other financial losses.
Here is how it works: you will receive legal representation from an attorney who can work on your behalf to negotiate with the claimant. If settlement negotiations fail, they may proceed to handle the case in court (if necessary). And if they win, your firm will not be held responsible for any charges that might arise from the incident.
Who Should Buy Financial Guarantee Surety Bond?
Now that you know what a financial guarantee surety bond is and what you can get out of buying one, here are some factors that should help you decide whether or not you should buy this type of insurance coverage:
- You own a small business with limited resources. This could include manufacturing or construction companies, home-based businesses with few employees, or start-ups that are in the process of getting their footing. It is not always easy to secure a loan, and if you have a tight budget, it might be wiser to spend your cash on buying a surety bond instead of sinking money into legal fees for trial processes.
- You need some kind of protection against product liability claims and customer dissatisfaction. If you sell a high-risk product (one that can cause significant injuries to the user) or regularly have dissatisfied customers, a financial guarantee surety bond is the best way to avoid costly litigation processes.
- You regularly work with third parties. This includes suppliers, distributors, and manufacturers that require an extra layer of protection when doing business with your company. In most cases, these companies will agree to provide a credit surety bond if they regularly do business with you. However, if this is not the case, you should consider buying a financial guarantee surety bond so you can get their services without worrying about liabilities in the future.
What happens to your business if you get sued?
Since a financial guarantee surety bond covers legal defense expenses, this means that you will not have to get involved in court proceedings to settle the case yourself.
Your insurer will handle all claims so long as they are legitimate, which includes property damage, injuries, and losses related to your business practices. This leaves you with more time to focus on growing your enterprise rather than wasting valuable resources on legal defense costs.